NEED FOR COMPETITION ACT IN GLOBAL ERA

PGP (O6-O8)/FW SECTION – A-2

PRESENTED BY

RICHA AWASTHI -42 ROHIT SHRIDHAR - 44

SAURABH LODARIA - 46 SHANKAR PARMESWARAN - 48

SHILPA LULLA -50 SHRUTI KORLIMARLA -52

VIKRAM M -54 VARUN BAJAJ -56

MUNIRA JARWALA -58 HITESH PATEL -60

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ACKNOWLEDGEMENT

This is with great pleasure that we take this

opportunity to work on our project of NEED FOR

COMPETITION ACT IN GLOBAL ERA, which has

not only allowed us to know the basic

fundamentals but has also laid down for us a

platform to understand the application end of the

subject(topic). Also, we would like to thank our

mentor Prof. Anant Amdekar who has been our

inspiration throughout for his support and regular

guidance which has also benefited us to have a

thorough understanding of law and its implications.

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TABLE OF CONTENTS

SR. NO. PARTICULARS PAGE NO.1. Prefatory Items 1-3

1.1 Topic and team members 11.2 Acknowledgement 21.3 Table of Contents 3

2. Introduction 43. MRTP ACT 74. Need for Competition Act 105. Limitation of MRTP Act 126. Competition act – U.S context 157. Competition act – South Africa context 208. Objectives of Competition Act 219. Composition of Commission 3010. Amendments 3311. Advantages of Competition Act 3412. Shortcomings of Competition Act 3513. Case Study – JET SAHARA 3614. Case Study – L&T GRASIM 3715. Case Study – NETSCAPE &

MICROSOFT40

16. Comparison 4117. Critical Comments 4218. Conclusion 4519. Bibliography 49

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GLOBAL COMPETITION AND COMPETITION ACT

Economic reforms in India were supposed to usher in a market-oriented economy in contrast to

the regime of licenses and controls that characterized the economy in the past. The fulcrum of a

market economy is competition. However, the ability of competition and the market economy to

enhance consumer welfare and to allocate resources optimally hinges on the proper functioning

of markets. Both in theory and practice the ill effects of improperly functioning markets have

been highlighted. Developed economies, like the U.S. and the U.K. have institutions to oversee

markets and attempts made to reduce competition. In India the Monopoly and Restrictive Trade

Practices Act also had a similar aim, but it was drawn up in the old regime and was unsuitable.

The Competition Act has now replaced it and a competition commission has been set up. Since

the competition commission is yet to start functioning this is a good time to deliberate on its

functions and the nature of competition policy that ought to be adopted. 

Economic Developments and Competition Policy

Two major economic forces are shaping the world economy as we move into the third

millennium: globalization and innovation. "Globalization" is the growing economic and political

integration and interdependence of countries as a result of trade, investment, movement of

persons and the dissemination of knowledge. Multinational enterprises have been at the centre of

this globalization process. These seemingly denationalized and borderless corporations,

encouraged by recent advances in transportation and communications technologies, have begun

to outsource the manufacture and assembly of selective non-core components of their complex

products to affiliates and strategic allies across national borders, thereby taking advantage of the

new trade environment sweeping the globe. The business sectors of most industrialized countries

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have thus internationalized their activities, resulting in an intricate web of linked activities

around the world.

Today’s knowledge-based economy, although still in its infancy, is proving to be fast-paced and

spurred by product, technology and organizational innovation. Anecdotal evidence is all around

us: product lifecycles are becoming shorter and shorter all the time; new, largely computer-

assisted technologies resulting from the digital microprocessing revolution are proliferating in all

aspects of business from the factory giants to the local corner store; and lean production

techniques, which promote specialization in core competency activities while outsourcing from

strategic allies, are reorganizing the marketplace.

The government policy responses to these developments, in the form of trade liberalization

efforts and the deregulation and privatization of utilities, have made the Canadian economy more

competitive.

For example, the Canada-United States Free Trade Agreement (FTA) has played a significant

role in raising the productivity and competitiveness of the Canadian manufacturing sector over

the past decade by forcing industry to rationalize plants and operations and to exploit economies

of scale further. Innovations in telecommunications and energy technologies and systems have

eliminated any general notion of "natural monopoly," and resulted in deregulation and open

competition where once only government or regulated private monopolies dominated the

commercial landscape.

These new business models exert new pressures on the business sector and are beginning to

reveal new stresses and fracture points in the competition policy framework. For instance,

greater cross-border trade may also mean more international anticompetitive conduct. As a

result, competition authorities must respond by further cooperating with one another.

A knowledge-based, innovation-driven economy is a dynamic economy, one that is characterized

by numerous new products, technologies and production processes, and even new industries.

Barriers to entry into the more mature industries can be knocked down and competition can

sometimes flourish where it has never been seen before. Market dominance also appears to be

more short-lived than in any previous time. However, across all industries technological change

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is apparently driving down the costs of production with the result that the typical firm’s cost

structure more frequently exhibits substantial increasing returns to scale. Allegations of

predatory behaviour are likely to mount in this new economic environment and the related

provisions of the Competition Act will come under increased pressure and scrutiny.

Innovative products will often be accompanied by an intellectual property right and there is an

interface there that must be looked at more closely:

The policy and enforcement interfaces between intellectual property and competition policies are

complex; however, clear borderlines must be drawn between competitive and anticompetitive

conduct. These economic developments also pose new challenges to the competition authority.

Competition and Competition Policy Interplay

The interplay between competition, on the one hand, and competition policy and law, on the

other hand, is interesting. Witnesses made it clear from the outset that: "Competition is a means

to an end. The reason we have competition is to deliver the best products at the best prices for the

people who buy them. As a result, "the best protection for consumers is a free and open market,

with as few barriers to new competitors coming in as possible, whether they’re regulatory,

ownership, trade, whatever types of barriers". However, unfettered competition alone is not

enough. A complementary competition policy is required in circumstances where, owing to

technological or regulatory barriers, competition will not automatically and immediately flourish.

While competition and competition policy are complementary, they are not perfect substitutes

when regulatory barriers intervene.

However, competition policy can be at best partially corrective. In this case, "competition law

alone is not sufficient to ensure the vitality of the competitive process. … Occasionally

competition law can offset some of the negative effects of these types of restrictions. More

frequently, however, it cannot. Indeed, trying to twist competition law so as to accommodate an

anticompetitive regulatory environment is likely to compromise and even corrupt competition

law. Bad regulation begets bad competition law.

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MONOPOLOSTIC AND RESTRICTIVE TRADE PRACTICE (MRTP)

The Monopolies and Restrictive Practices Act, 1969, which, loosely speaking, was the first

competition law of the country. The MRTP Act represents an era of aggressive government

interventionist policy reflected unambiguously in controls, licensing, permits and promotion of

public sector. The dawn of liberalization in 1991, following a financial crisis, rendered some

laws inconsistent with new economic policies. One of them was MRTP Act.

MRTP Act, which came into force on 1 June 1970, was the first substantive legislation aimed at

regulating free and unfettered trade. The main objective of enacting the MRTP Act was to ensure

that the economic system does not result in the concentration of economic power to the common

detriment, for the control of monopolies and for the prohibition of monopolistic and restrictive

trade practices.

The MRTP Act regulated three types of trade practices, which hamper competition in India or

are prejudicial to public interest, namely

1) Monopolistic trade practices

2) Restrictive trade practices

3) Unfair trade practices

1) Monopolistic Trade Practices (MTPs)

MTP is defined under section 2(i) of MRTP Act as a trade practice which has or is likely to have the effect of:

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Maintaining the prices of goods or charges for the services at an unreasonable level by

limiting, reducing or otherwise controlling the production, supply or distribution of goods

or the supply of any services or in any other manner;

Unreasonably preventing or lessening competition in the production, supply or

distribution of any goods or in the supply of any services;

Limiting technical development or capital investment to the common detriment or

allowing the quality of any goods produced, supplied or distributed, or any services

rendered, in India to deteriorate;

Increasing unreasonably:

- the cost of production of any goods; or

- charges for the provision, or maintenance of any services;

Increasing unreasonably:

- the prices at which goods are, or may be, sold or re-sold, or the charges at which the

services are, or may be, provided; or

- the profits which are, or may be, derived by the production, supply or

distribution(including the sale or purchase) of any goods or in the provision or maintenance of

any goods or by the provision of any services:

Preventing or lessening competition in the production, supply or distribution of any

goods or in the provision or maintenance of any services by the adoption of unfair

methods or unfair or deceptive practices.

Example for MTPs:

In the US Microsoft was using its monopoly in operating system to secure monopoly in the

internet explorer market. Microsoft is supplying its internet browser with Windows 98. This

destroyed the market of Netscape Browser. An Antitrust case was launched against Microsoft

which it lost and the court has ordered division of the company in one dealing in operating

systems and the other in applications.

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2) Restrictive Trade Practices (RTPs)

A restrictive trade practice is generally one which has the effect of preventing, distorting or

restricting competition. In particular, a practice which tends to obstruct the flow of capital or

resources into the stream of production is an RTP. Likewise, manipulation of prices, conditions

of delivery or flow of supply in the market which may have the effect of imposing on the

consumer unjustified costs or restrictions are regarded as restrictive trade practices. But

competition is not always a necessary touchstone on which a trade practice is judged if it is a

RTP. Certain common types of restrictive trade practices enumerated in the Act which do not

have an element of competition and are deemed legally to be prejudicial to public interest.

Examples of RTP are:

a) Deficiency in Insurance Services as in not settling insurance claim on flimsy and/or untenable

grounds for a long time in deficient service.

b) Insisting that the customers should collect gas refills from its godown instead of effecting

homedelivery service which imposes extra unjustified cost on the customer.

c) Wide variations in prices in different regions unrelated to freight cost is RTP as it distorts the

competition between different regions.

3) Unfair Trade Practices (UTPs)

Sec 36A defines UTP as a trade practice, which for the purpose of promoting sale, use or supply

of any goods or provision of services, adopts any unfair method or unfair or deceptive practice.

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NEED OF COMPETITION ACT IN INDIA

The globalized and liberalized Indian economy is witnessing cut-throat competition. To

provide institutional support to healthy and fair competition, there is a requirement of

better regulatory and adjudicatory mechanism. To this effect, India has enacted the new

competition law which shall replace the earlier law. This is a shift from curbing monopolies to

encouraging competition. The design of the new law carves out a very important role for

the Competition Commission of India (CCI). The task has been divided in three phases. This

article sets out to explain the intricate relationship of competition law and judiciary in India by

examining the experience CCI had so far. The article then goes on to examine the role of

lawyers. The article then considers the time frame for the implementation of the three

phases and provides realistic suggestions to have a successful setting of competition regime

in India.

Introduction

In the pursuit of globalization, India has responded by opening up 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. To

take care of the needs of the trading, industry and business associations, the Central

Government decided to enact a law on competition. Finance Minister, Chidambaram

(2003) highlighted the need to have a strong legal system and said —A world class legal

system is absolutely essential to support an economy that aims to be world class. India needs to

take a hard look at its commercial laws and the system of dispensing justice in commercial

matters.“ With this zeal the Government went ahead and enacted the Competition Act, 2002.

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The Earlier law and the need for change

It would be interesting to turn the pages of history and see how the earlier law, which is

still in force, was enacted. In 1964, when the Indian democracy was in its nascent stage œ

barely 17 years old œ the Government of India appointed the Monopolies Inquiry Commission

to inquire into the extent and effect of concentration of economic power in private hands

and the prevalence of monopolistic and restrictive trade practices in important sectors of

economic activity other than agriculture. The Commission submitted its report alongwith

The Monopolies and Restrictive Trade Practices Bill, 1965, which was later passed by both

the Houses of Parliament and received the assent of the President on December 27, 1969.

It came into force on June 1, 1970 as the Monopolies and Restrictive Trade Practices

Act, 1969. The Statement of Objects and Reasons mentioned that the Act was to provide

that the operation of the economic system did not result in the concentration of economic power

to the common detriment, for the control of monopolies, for the prohibition of monopolistic and

restrictive trade practices and for matters connected therewith and incidental thereto.

Since 1970, the Act had been amended several times to suit to the changing

circumstances. However, of late, particularly after the economic reforms of early 1990s,

it was felt that the MRTP Act had become obsolete in certain respects in the light of

international economic developments relating more particularly to competition laws and

there was a need to shift focus from curbing monopolies to promoting competition. The

MRTP Act was beyond repair and could not serve the purpose of the new competitive

environment. A new law (Indian Competition Act) may be enacted, the MRTP Act may

be repealed and the MRTP Commission wound up. The provisions relating to unfair

trade practices (UTP) need not figure in the Indian Competition Act as they were covered by

the Consumer Protection Act, 1986. The pending cases in the MRTP Commission may

be transferred to the concerned Consumer Courts under the Consumer Protection Act,

1986. The pending MTP (Monopolies and Restrictive Practices) and RTP (Restrictive Trade

Practices) cases in the MRTP Commission may be taken up for adjudication by the

Competition Commission of India (CCI) from the stages they were in.

THE COMPETITION ACT, 2002

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An Act to provide, keeping in view of the economic development of the country, for the

establishment of a Commission to prevent practices having adverse effect on competition, to

promote and sustain competition in markets, to protect the interests of consumers and to ensure

freedom of trade carried on by other participants in markets, in India, and for matters connected

therewith or incidental thereto. It extends to the whole of India except the State of Jammu and

Kashmir

THE FRAMEWORK OF THE COMPETITION BILL IN INDIA:

The preamble of the Competition bill states that it is a law to foster and maintain competition in

the Indian Market to serve consumer interest while protecting the freedom of economic action of

various market participants and to prevent practices which affect competition, and to establish a

commission therefore.

This law replaces the age-old MRTP act. The MRTP act had two parts, one, the restriction of

monopoly, and the other the curtailing of restrictive trade practices. While the restriction of

monopoly implied that no firm could expand beyond a certain limit of investments, and artificial

efforts at raising prices or restricting supply in a market in such a way so as to get a price above

the one that market would be prepared to pay under normal circumstances.

Thus the emphasis of competition bill is more on consumer freedom and freedom of economic

activities rather than control and elimination of monopolies the different chapters deal with the

length and breadth of this law.

Limitations of MRTP Act- 1969 ( NEED FOR COMPETITION ACT)

1) “Command and Control” Policy absolute:

In the period following Independence of India, the policy of the government was more of

‘Command and Control’ of economic growth in the country. Hence laws, rules , regulations

were framed in accordance with the same. However, with change in economy, the law had to be

amended.

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In 1980, the government, with an Industrial Policy statement gave many concessions to

companies falling under MRTP Act- an important concession was raising limit for MRTP

companies from Rs 20 crore to Rs 100 crore at one stroke

In December 1985, government permitted unrestricted entry of large industrial house falling

under MRTP, to freely take-up manufacture of 83 items. MRTP firms (i.e. companies having

assets above Rs 100 crore} would be considered on par with other companies and not require

prior approval in delicensed industries.

The 1991 amendment to the Act deleted the concept of MRTP Company and repealed almost all

provisions relating to their expansion.

The fact that the Act has been amended several times since 1969 –in1980, 1982, 1984, 1985,

1986, 1988, 1991 – shows that there are many lacuna in it and that it needs to be replaced

altogether by a new comprehensive law.

2) “Growth Objective”:

The policy of the government right since Independence, has been to pursue industrial growth

without concentration of industries in the hands of a few. However, the legislation to control

concentration of industries was enacted in 1969, nearly 20 years after launching planned

economic development. Within 3-4 years, the enthusiasm of government diluted as can be seen

from the relaxations granted for expansion and growth of large companies/business houses on a

variety of grounds such as priority industries, location in backward areas, exports etc. In the

1970s especially, government has seen the conflict between objectives of rapid growth and

prevention of concentration of economic power in private hands, and government has openly

given priority to growth objective.

3) Failed to cover all Aspects:

With liberalization, came WTO agreements, relation to Foreign Investment, Intellectual Property

Rights, subsidies, anti-dumping measures. MRTP Act does not cover these aspects. Hence

there was a need of a new law covering all these aspects.

4) Lack of Awareness about the Act:

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The Provisions relating to unfair trade practices are covered by consumer protection Act, 1986,

which is highly publicized. Hence people in general, are more aware of it than the MRTP

commission which is situated only in New Delhi, and hence is not accessible to many. The

Consumenr Protection Commision are more easily accessible.

5 )Does not prohibit restrictive and unfair trade practices:

MRTP does not impose any penalties on unfair trade practices. Hence business houses/traders

take advantage of this situation. Hence a need arises to impose penalties to deter industries from

unfair trade practices.

6) Lack of independent powers:

It did not have powers to impose penalties for breach of its directives. Its chief investigator, the

DG(I&R) did not have powers to even enforce attendance of a witness.

7) MRTP Act provides for Registration of agreements as compulsory & has powers only to pass

"Cease and Desist" orders. It did not have any other powers to prevent or punish, it was rigidly

structured and is based on pre reforms scenario.

CASE STUDY which shows Failure of the MRTP Act

The Vitamins Cartel and the MRTP Commission

Several leading and sophisticated drug manufacturers, of the world, have been involved in a

global conspiracy to fix prices of bulk vitamins, sales volume and allocate markets. This

international vitamin cartel continued from 1990 to 1999, and was investigated by the authorities

in the US, EU, Australia, Canada, Japan, etc. Heavy fines were levied on the companies found to

be guilty. Subsidiaries of most of these companies are present in developing countries also,

including India. The additional cost for developing countries, due to this cartel, is estimated to be

US$3bn1 . Nevertheless, no competition authority from developing countries, except Brazil, has

investigated or handled this case. The Indian experience is an example of this. Keeping in view

the international character of this cartel, it was obvious that it must also have had adverse effects

in India. These companies, in all probability, would have been engaged in such practices in the

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country, either through direct sales or by way of exports. The estimated cost imposed by the

cartel, on India, was about US$25mn, over the 1990s. To find out more about this, CUTS

decided to start a case. As a first step in this direction, all the relevant information on the cases,

accumulated by several authorities around the world, was collected from the internet and then

documented. This information included details of the company, details of the investigation, the

judgement and the balance sheets of some of these companies during the relevant period. Letters

were written to the CEOs of these companies in India asking them to give a written undertaking

to the effect that they did not engage in any such anti competitive practice in India. Responses

were received from Hoffman La Roche and BASF India Ltd.,stating that they have not engaged

in such practices but no response came from Rhone Poulenc Ltd, which incidentally, was the

approver in the US investigation and had escaped punishment. Being a consumer organisation,

CUTS had limited ability and hence it passed the collected information to the Director General

Investigation & Registration) with a request for further investigation into the matter. The DG

passed on the information to the MRTPC and became the ‘complainant’ CUTS was given the

status of ‘informant’. On direction of the MRTPC, the DG conducted a preliminary investigation

and submitted its Preliminary Investigation Report (PIR). On the basis of the PIR, the MRTPC

held that no case can be made and CUTS was informed accordingly. CUTS wanted to get a copy

of the PIR in order to see what kind of investigation was done. But the DG said that the copy

could be obtained only from the MRTPC, while the Commission said only the DG had the

authority to issue it. This clearly showed the lack of awareness about the law in the competition

authority. Finally, the case was heard in the court and it was held that the law clearly states that

the informant does not have a right to get a copy of the PIR. To conclude, the way the

competition authority worked is very obvious. The kind of investigation done seems rather weak

and no body knows what was actually done. The matter has come to an end as far as MRTPC is

concerned but CUTS intends to get to the bottom of the matter, so that in future such type of

difficulties do not exist.

Source : CUTS (2003), “Pulling Up Our Socks - A Study of Competition

COMPETITION LAW – IN CONTEXT OF OTHER COUNTRIES

COMPETITION LAW – US CONTEXT

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In US competition law is expressed in the form of antitrust law. The historic goal of the antitrust

laws in the U.S is to protect economic freedom and opportunity by promoting competition in the

marketplace. Competition in a free market benefits American consumers through lower prices,

better quality and greater choice. Competition provides businesses the opportunity to compete on

price and quality, in an open market and on a level playing field, unhampered by anticompetitive

restraints. Competition also tests and hardens American companies at home, the better to succeed

abroad.

ANTITRUST ENFORCEMENT AND THE CONSUMER IN THE U.S

The first set of competition (antitrust) laws were enacted among the western industrialized

countries towards the end of the last century. The pioneers were Canada (1889) and the United

States (1890). It is interesting to observe that a hundred years later, several developing and

transition market economies are embracing competition laws. Since 1990 alone, at least 30 such

countries have adopted new laws, or have substantially revised their existing laws. These include

virtually all of the former communist-centrally planned economies in Central and Eastern

Europe, and the Former Soviet Union. Several other countries are in the process of following

suit.

Antitrust laws protect competition. Free and open competition benefits consumers by ensuring

lower prices and new and better products. In a freely competitive market, each competing

business generally will try to attract consumers by cutting its prices and increasing the quality of

its products or services. Competition and the profit opportunities it brings also stimulate

businesses to find new, innovative and more efficient methods of production.

Consumer’s benefit from competition through lower prices and better products and services.

Companies that fail to understand or react to consumer needs may soon find themselves losing

out in the competitive battle.

When competitors agree to fix prices, rig bids or allocate (divide up) customers, consumers lose

the benefits of competition. The prices that result when competitors agree in these ways are

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artificially high; such prices do not accurately reflect cost and therefore distort the allocation of

society's resources. The result is a loss not only to U.S. consumers and taxpayers, but also to the

U.S. economy.

When the competitive system is operating effectively, there is no need for government intrusion.

The law recognizes that certain arrangements between firms -- such as competitors cooperating

to perform joint research and development projects -- may benefit consumers by allowing the

firms that have reached the agreement to compete more effectively against other firms. The law

does not condemn all agreements between companies, only those that threaten to raise prices to

consumers or to deprive them of new and better products.

Thus, according to the Antitrust law when competing firms get together to fix prices, to rig bids,

to divide business between themselves or to make other anticompetitive arrangements that

provide no benefits to consumers, the government will act promptly to protect the interests of

American consumers.

The U.S government takes a number of actions to promote a competitive environment:

1.Breaking up monopolies: Relying on the Sherman Act, the government may sue to break up a

corporation that has attained a monopoly or near monopoly in an industry. In 1911, the

government broke up Standard Oil of New Jersey (which controlled over 90 percent of the

refining and sales of petroleum products) into 30 independent corporations. In 1982, AT & T,

after being sued by the government agreed to be broken into 23 independent local telephone

companies. These operating companies became seven regional phone companies offering local

telephone service. The long-distance service, Western Electric and Bell Laboratories were

retained in the corporation that kept the name AT & T. Other suits by the government have been

less successful. The courts refused to breakup U.S. Steel in 1920. The government also was

unsuccessful in breaking up IBM in 1982.

2. Preventing monopolies from arising: The government seeks to keep corporations with

economic power from engaging in practices that are designed to minimize or eliminate

competition. Such practices include bundling and tying arrangements, price discrimination, and

price fixing. In the 1990s, a number of legal suits against such practices have been brought;

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however, winning such cases in court is difficult. Nintendo of America, the dominant video-

game maker, successfully defended an antitrust action brought by Atari Corporation. Microsoft

agreed to share information about its Windows operating system with software developers and to

stop requiring PC manufacturers to pay license fees for Windows on all units shipped (whether

or not Windows was installed). The 1998 suits brought by the Justice Department against

Microsoft and Intel is yet to be resolved.

Illegal predatory pricing occurs when a large company sets price below cost in order to drive

smaller companies out of competitions are driven out. (Companies do not reenter since they

know that entry will lead to another round of price-cutting). The problem for courts is to

distinguish predatory pricing from virtuous price competition. In 1993, the United States

Supreme Court cleared Brown and Williamson Tobacco Corporation of predatory pricing

charges brought by the Brook Group, a rival seller of generic cigarettes. The court raised the

standard for proving predatory pricing, requiring proof that the accused company deliberately

priced at a loss, that this behavior had a reasonable chance of driving rivals out of business, and

that the accused would profit as a result. Although American Airlines was cleared of predatory

pricing charges in the early 1990s, antitrust authorities were conducting new investigation in

1998, alleging that large airlines routinely slashed prices and added extra flights on routes where

discount airlines began offering service.

3.Preventing mergers that reduce competition: The government also has acted to prevent

mergers in which the results would be a monopoly or near-monopoly position or in which the

merger would significantly reduce competition. In 1962, the government successfully sued to

prevent the merger of brown Shoe and Kinney Shoe, respectively the fourth and eight largest

manufacturers of shoes at the time. The effect of the merger was likely to foreclose other

manufacturers from using Kinney as a retailer. In 1964, the government successfully sued to

prevent the merger of the second largest producer of metal containers with mergers of the second

largest producer of metal containers with the third largest producer of glass containers. The

Clinton administration has closely scrutinized and blocked a number of mergers. Subject to

minor conditions, regulators blocked proposed mergers of staples and office Depot (office supply

superstores) and Rite-Aid and Revco (prescription drug suppliers) and Microsoft’s acquisition of

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into it (maker of Quicken financial software), on the basis of economic evidence that reduced

competition would result.

4.Preventing collusion: Firms need not be monopolies to exercise monopoly power. Firms can

form cartels and collaborate to reduce output and increase price. Such cartels have the same

effect on social welfare as do monopolies, and such behavior is illegal. Price fixing (in which

corporations jointly decide what price to set) also is illegal. In 1927, the court found that the

maker of toilets has acted illegally when they met to fix prices and limit quantities. More

difficult is the problem of price fixing when there is no explicit agreement to do so. Even absent

an agreement, the court may find "conscious parallelism," that is, a situation in which all

producers act in the same way at the same time while being aware that other producers are doing

likewise.

In the 1990s, the government successfully challenged the practice of Ivy League universities

meeting and exchanging information on planned tuition increases, faculty salaries, and financial

aid polices. In 1996, the giant agribusiness firm Archer Daniels Midland pleaded guilty to fixing

the price of citric acid ( a food additive) and paid a $100 million fine. In 1997, thirty brokerage

firms paid $900 million to settle claims that they fixed prices.

Antitrust law is a large and complex field. A typical case may last as long as a decade. There are

provisions for enforcement not only by the government but also by private citizens. Both the

Sherman Act and the Clayton Act allow private parties who are injured by anticompetitive

behavior to bring suit for damages. If successful, the suing party receives three times the value of

the actual injury.

Antitrust policy in the 1990s:In the 1990s the Justice Department and the Federal Trade

Commission have taken pragmatic approaches to antitrust regulation. American antitrust policy

was born in opposition to the great wave of mergers and consolidations at the close of the

nineteenth century. The original philosophy of the trustbusters was that market dominance and

monopoly was bad in and of themselves. Until the 1960s, the government prevented the merger

of two Los Angel’s grocery chains that shared just 8 percent of the local market). However, by

the 1970s, and 1980s, the Chicago School approach had assumed dominance in the antitrust

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arena. According to this school, the forces of free market competition are far more effective at

limiting monopolies than government regulators. Absent prohibitive barriers to entry, a firm’s

market power would only be temporary. High profits would attract new entrants attenuating the

monopolist’s power. Following this approach, the Reagan and Bush administrations used their

antitrust powers sparingly

COMPETITION POLICY – SOUTH AFRICAN CONTEXT

In certain cases, markets are not usually competitive: they are often dominated by big suppliers

who use their sheer market power to determine the forms of the market; this has adverse and

detrimental consequences on the consumers. Market can be defined as either a product market or

a geographic market. Market power can be abused in the product market as well as the

geographic market. Because of imperfect competition in the market, national governments

around the world intervene in the market economy by drafting and implementing competition

policy. Some of the reasons and objectives for government interventions are:

1. To respond to market failures.

2. To limit abuse of market power

3. To preserve and stimulates the operations of competitive market

4. In certain situation, to limit foreign participation of foreign capital in order to create and

cultivate domestic industry

There are two types of government intervention. The first type is behavioral and the second,

structural:

1. Behavioral intervention is when the government through a public authority attempts to

transform the behavior of one firm or group of firms through effective regulation of their

activities. Examples of this are interconnection deals, price regulation or the prohibition

of collusive practices.

2. Structural intervention focuses on the market structure of the industry. Examples are the

intervention to prevent a merger of two major telecom companies; a network operator

may be required to separate its operations into distinct corporate entities.

20

Two of the ways to do this is to set up an economy wide competition regulator and/or create an

industry specific regulator that implements policies and manages competition in a particular

sector. An economy wide competition authority uses competition law to regulate all sectors in an

economy or country. A sector-specific regulator regulates one sector of the economy. While

some countries such as New Zealand has long had economy-wide competition law with no sector

specific regulator, others like South Africa has the two structures: a telecommunications

regulator and a competition commission.

OBJECTIVES OF THE COMPETITION ACT

Objects to be achieved & Salient Features of the New Competition Regime:

The Competition Act has been designed as an omnibus code to deal with matters relating to the

existence and regulation of competition and monopolies. Its objects are lofty, and include the

promotion and sustenance of competition in markets,

protection of consumer interests and ensuring freedom of trade of other participants in the

market, all against the backdrop of the economic development of the country. However, the

Competition Act is surprisingly, compact, composed of only 66 sections. The legislation is

procedure-intensive, and is structured in an uncomplicated manner. The raison detre of the

Competition Act is to create an environment conducive to competition. The various Objectives

of the Act are as follows

I. To check anti-competitive practices

II. To prohibit abuse of dominance

III. Regulation of combinations.

IV. To provide for the establishment of Competition Commission of India (CCI), a quasi-judicial

body to perform below mentioned duties:

21

Prevent practices having adverse impact on competition

Promote and sustain competition in the market

Protect consumer interests at large

Ensure freedom of trade carried on by other participants in the market

Look into matters connected therewith or incidental thereto.

I] ANTI-COMPETITIVE AGREEMENTS :

A scan of the competition laws in the world will show that they make a distinction between

horizontal and vertical agreements between firms. The former, namely the horizontal agreements

are those among competitors and the latter, namely the vertical agreements are those relating to

an actual or potential relationship of purchasing or selling to each other. . Most competition laws

view vertical agreements generally more leniently than horizontal agreements as horizontal

agreements are more likely to reduce competition than agreements between firms in a purchaser -

seller relationship. For example an agreement made between enterprises dealing in the same

product or products. Such horizontal agreements, lead to unreasonable restrictions of competition

and are therefore presumed to have an appreciable adverse effect on competition.

The following diagram helps in understanding the scheme provided under section 3 of the

Competition Act, 2002.

Section 3 of the Act, states that:

(1) No enterprise or association of enterprises or person or association of persons shall

enter into any agreement in respect of production, supply, distribution, storage, acquisition or

control of goods or provision of services, which causes or is likely to cause an” appreciable

adverse effect on competition within India.”

22

(2) Any agreement entered into in contravention of the provisions shall be void.

(3) Any agreement entered into between enterprises or associations of enterprises or persons of

associations of persons or between any person and enterprise or practice carried on, or decision

taken by, any association of enterprises or association of persons, including cartels, engaged in

Identical or Similar Trade of goods or provision of services, which—

(a) directly or indirectly determines purchase or sale prices;

(b) limits or controls production, supply, markets, technical development, investment of

provision of services;

(c) shares the market or source of production or provision of services by way of allocation

of geographical area of market, or type of goods or services, or number of customers in the

market or any other similar way;

d) directly or indirectly results in bid rigging or collusive bidding, shall be presumed to have

an appreciable adverse effect on competition.

Bid Rigging or Collusive Bidding:

It is an illegal agreement between two or more competitors. It is a form of price fixing and

market allocation and involves an agreement in which one party of a group of bidders will be

designated to win the bid.

E.g. Government construction contracts.

Cartelization and sharing of territories:

The adverse effects of cartels or collusive agreements vary in degree depending on the nature of

the companies involved. It is the hard core cartels that are the cause of immediate concern for the

government. Agreements for sharing of markets or sources of production/supply by territory,

23

type, size of customer or any other way are also offensive. It includes an association of

producers, distributors, sellers, traders, or services providers who, by agreement amongst

themselves, limit, control or attempt to control the production, distribution, sale of price of, or,

trade in goods or provision of services.

Provided that nothing contained in this sub-section shall apply to 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.

Eg : Case on DGIR v/s Srichankra Tyres :

DGIR files a case against Srichankra Tyres as the Association of lorry owners was fixing

freight rates and not allowing members of association to charge price lower than that fixed by

association to charge price lower than that fixed by association.

This is a typical case of Cartelling where a group of players come together and by agreement

amongst themselves limit or control trade, production, sale or purchase of goods and provision of

services.

(4) 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.

(5) Nothing contained in this section shall restrict—

(i) 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) The Copyright Act, 1957

(b) The Patents Act, 1970

24

(c) The Trade and Merchandise Marks Act, 1958 (43 of 1958) or the Trade Marks

Act, 1999

(d) The Geographical Indications of Goods (Registration and Protection) Act, 1999

(e) The Designs Act, 2000

(f) The Semi-conductor Integrated Circuits Layout-Design Act, 2000

(ii) 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.

2] ABUSE OF DOMINANT POSITION:

The concept of dominant undertaking prevailing in the MRTP Act has been discarded.

Dominant Position has been appropriately defined in the Act in terms of the position of strength,

enjoyed by an enterprise, in the relevant market, in India, which enables it to :

i) operate independently of competitive forces prevailing in the relevant market; or ii)affect its

competitors or consumers or the relevant market, in its favour.

At this point it is worth mentioning that the Act does not prohibit or restrict enterprises from

coming into dominance. There is no control whatsoever to prevent enterprises from coming into

or acquiring position of dominance. All that the Act prohibits is the abuse of that dominant

position. The Act therefore targets the abuse of dominance and not dominance per se. This is

indeed a welcome step, a step towards a truly global and liberal economy.

Dominant position is abused when an enterprise imposes unfair or discriminatory conditions in

purchase or sale of goods or services or in the price in purchase or sale of goods or services.

According to section 4 of the act:

(1) No enterprise shall abuse its dominant position.

(2) There shall be an abuse of dominant position under sub-section (1),

25

if an enterprise.—-

(a) Directly or indirectly, imposes unfair or discriminatory—

condition in purchase or sale of goods or service; or

price in purchase or sale (including predatory price) of goods or service,

For the purposes of this clause, the unfair or discriminatory condition in purchase or sale of

goods or service referred to in sub-clause(i) and unfair or discriminatory price in purchase or sale

of goods (including predatory price) or service referred to in sub-clause (ii) shall not include

such discriminatory condition or price which may be adopted to meet the competition; or

(b) Limits or restricts—

production of goods or provision of services or market therefore; or

technical or scientific development relating to goods or services to the prejudice of

consumers; or

(c) Indulges in practice or practices resulting in denial of market access; or

(d) 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

(e) Uses its dominant position in one relevant market to enter into, or protect, other relevant

market.

III] REGULATION OF COMBINATIONS:

The Act is also designed to regulate the operation and activities of Combinations, a term which

contemplates acquisition, mergers, take overs or amalgamations. Thus, the operation of the

Competition Act is not confined to transactions strictly within the boundaries of India but also

such transactions involving entities existing and/or established overseas. Herein again lies the

26

key to understanding the Competition Act. The intent of the legislation is not to prevent the

existence of a monopoly across the board. There is a realisation in policy-making circles that in

certain industries, the nature of their operations and economies of scale indeed dictate the

creation of a monopoly in order to be able to operate and remain viable and profitable. This is in

significant contrast to the philosophy, which propelled the operation and application of the

MRTP Act, the trigger for which was the existence or impending creation of a monopoly

situation in a sector of industry

The Act mandates that No person or enterprise shall enter into a combination which causes or is

likely to cause an appreciable adverse effect on competition within the relevant market in India

and such a combination shall be void.. The Act has made the pre-notification of combinations

voluntary for the parties concerned. However, if the parties to the combination choose not to

notify the CCI, as it is not mandatory to notify, they run the risk of a post-combination action by

the CCI, if it is discovered subsequently, that the combination has an appreciable adverse effect

on competition. There is a rider that the CCI shall not initiate an inquiry into a combination after

the expiry of one year from the date on which the combination has taken effect. Combination

that exceeds the threshold limits specified in the Act in terms of assets or turnover, which causes

or is likely to cause an appreciable adverse impact on competition within the relevant market in

India, can be scrutinized by the Commission

      Acquisition, merger or amalgamation would become ‘Combination’ when:  

Nature of Combination Group

Status

Criterion   Value

(a) Acquisition by

enterprises

No Group Assets

 

 

In India

World over

>Rs. 1,000 Cr.

>US$500 million

(b)Acquisition by

individuals

  Turn over In India

World over

>Rs. 3,000 Cr.

>US$1500 million

27

©Mergers/ amalgamation Group Assets In India World

Over

>Rs. 4,000 Cr.

>US $ 2 Billion

    Turn over In India World

over

>Rs. 12,000 Cr.

>US$ 6 Billion

Threshold limits that would invite the scrutiny are specified below:

For acquisition:

Combined assets of the firm more than Rs 3,000 crore (these limits are US $ 500 millions

in case one of the firms is situated outside India).

The limits are more than Rs 4,000 crore or 12,000 crore and US $ 2 billion and 6 billion

in case acquirer is a group in India or outside India respectively.

For mergers:

Assets of the merged/amalgamated entity more than Rs 1,000 crore or turnover more than

Rs 3,000 crore (these limits are US $ 500 millions and 1,500 millions in case one of the

firms is situated outside India).

These limits are more than Rs 4,000 crore or Rs 12,000 crore and US $ 2 billions and 6

billions in case merged/amalgamated entity belongs to a group in India or outside India

respectively.

Further, such combination, which causes or is likely to cause "appreciable adverse impact" on

competition, would be treated as void.

A system is provided under the Act wherein at the option of the person or enterprise proposing

to enter into a combination may give notice to the Competition Commission of India of such

intention providing details of the combination. The Commission after due deliberation, would

give its opinion on the proposed combination to approach the Commission for this purpose.

However, public financial institutions, foreign institutional investors, banks or venture capital

28

funds which are contemplating share subscription financing or acquisition pursuant to any

specific stipulation in a loan agreement or investor agreement are not required to approach the

CCI for this purpose.

Competition Advocacy :

Perhaps one of the most crucial components of the Act is competition advocacy . Competition

advocacy creates a culture of competition.

Intention is to help evolve competition law through review of policy, promotion of competition

advocacy, creating awareness and imparting training about competition issues. For this purpose

In line with the High Level Committee's recommendation, the Act extends the mandate of the

Competition Commission of India beyond merely enforcing the law (High Level Committee,

2000).

The Regulatory Authority under the Act, namely, Competition Commission of India (CCI), is

enabled to participate in the formulation of the country's economic policies and to participate in

the reviewing of laws related to competition at the instance of the Central Government. The

Central Government can make a reference to the CCI for its opinion on the possible effect of a

policy under formulation or of an existing law related to competition. The Commission will

therefore be assuming the role of competition advocate, acting pro-actively to bring about

Government policies that lower barriers to entry, that promote deregulation and trade

liberalisation and that promote competition in the market place.

IV] COMPETITION COMMISSION OF INDIA:

The apex body under the Competition Act which has been vested with the responsibility of

eliminating practices having an adverse effect on competition, promoting and sustaining

competition, protecting the interest of the consumers, and ensuring freedom of trade carried on

by other participants in India, is known as the Competition Commission of India (CCI) --- the

successor to the MRTP Commission. CCI, entrusted with eliminating prohibited practices, is a

body corporate and independent entity possessing a common seal with the power to enter into

contracts and to sue in its name.The CCI is not merely a law enforcement agency, but would be

actively involved in the formulation of the country’s economic policies, advise the government

29

on competition policy, take suitable measures for the promotion of competition advocacy and

create awareness and imparting training about competition issues.

Composition of Commission

The Commission shall consist of a Chairperson and not less than two and not more than ten

other Members to be appointed by the Central Government: Provided that the Central

Government shall appoint the Chairperson and a Member during the first year of the

establishment of the Commission.

The Chairperson and every other Member shall be a person of ability, integrity and standing

and who, has been, or is qualified to be, a judge of a High Court; or, has special knowledge

of, and professional experience of not less than fifteen years in international trade,

economics, business, commerce, law, finance, accountancy, management, industry, public

affairs, administration or in any other matter which, in the opinion of the Central

Government, may be useful to the Commission.

The Chairperson and other Members shall be whole-time Members.

Jurisdiction

An enquiry or complaint could be initiated or filed before the Bench of CCI if within the local

limits of its jurisdiction the respondent\s actually or voluntarily resides, carries on business or

works for personal gain, or where the cause of action wholly or in part arises.

CCI has been vested with the powers of a civil court including those provided under

sections 240 and 240A of the Companies Act, 1956 on an "Inspector of Investigation" while

trying a suit, including the power to summon and examine any person on oath, requiring the

discovery and production of documents and receiving evidence on affidavits. CCI is also vested

with certain powers of affirmative action to act in an expedited manner. Civil courts or any

30

other equivalent authority will not have any jurisdiction to entertain any suit or proceeding or

provide injunction with regard to any matter which would ordinarily fall within the ambit of CCI.

Exclusions from Jurisdiction:

- Reasonable Rights under IPRs, etc. protected under Competition Act.

- Agreements exclusively for exports exempted

Acts taking place outside India:

CCI has the power to enquire into unfair agreements or abuse of dominant position or

combinations taking place outside India but having adverse effect on competition in India,

provided that any of the below mentioned circumstances exists:

An agreement has been executed outside India

Any contracting party resides outside India

Any enterprise abusing dominant position is outside India

A combination has been established outside India

A party to a combination is located abroad.

Any other matter or practice or action arising out of such agreement or dominant position or

combination is outside India.

To deal with cross border issues, CCI is empowered to enter into any Memorandum of

Understanding or arrangement with any foreign agency of any foreign country with the prior

approval of Central Government.

Powers of CCI:

The CCI will have the following powers:

To issue "Cease and Desist" Orders:

To grant such interim relief as would be necessary in each case.

31

To award compensation.

To impose fines on the guilty.

To order division of dominant undertaking.

Power to order de-merger.

Power to order costs for frivolous complaints

In addition to the adjudication function, the CCI will have the roles of advocacy, investigation,

prosecution and merger control.

The Statutory Regulatory Authorities can make reference to CCI for advice.

The proposed Law provides for the post of Director Genral (and a host of his deputies in various

places) to assist the Competition Commission in its inquiries. Unlike in MRTP Act, the Director

General will not have powers to initiate investigations suo motu.

Extension of the executive powers

The Act contemplates the extension of the executive powers of CCI by the appointment of a

Director General and as many other persons for the purpose of assisting it in conducting

enquiries into contraventions of the provisions of the Act as well as conducting cases before the

Commission.

Penalties:

In case of failure to comply with the directions of CCI and Director General or false

representation of facts by parties, penalties ranging from Rs 1lac to Rs 1 crore may be

impSSosed as the case may be.

Execution of the order

So far the execution of the order is concerned, it is the responsibility CCI. However, in the event

of its inability to execute it, CCI may send such order for execution to the High Court or the

principal civil court, as the case may be.

32

POST-DECISIONAL OPTIONS:

The aggrieved person may apply to CCI for review of the order within thirty days from the date

of the order, provided that the below mentioned conditions are fulfilled:

An appeal is allowed by this Act

No appeal has been preferred

Provision has been made for an appeal against any order or decision of CCI by any aggrieved

persons. An application for this purpose has to be made to the Supreme Court within sixty days

from the date of communication of the decision or order.

Amendments in the Competition Act :

In March this year the government put forward the Competition (Amendment) Bill 2006,

which has been referred to the parliamentary standing committee on finance. The bill

proposes to amend no less than 42 of the 61 sections of the Competition Act, replacing 13 and

deleting 5 sections in their entirety, and introducing about 21 new sections. These changes not

only attempt to address the Supreme Court’s objections, but also modify several of the

substantive provisions of the act dealing with anti-competitive practices.

Proposals of the amendment

1. A change proposed in Section 12 increases from one year to two years the “cooling-

off” period for which the chairman and members of the CCI are debarred from

accepting employment with any (private) enterprise that has been party to any

proceedings before it.

2. Amendments to Sections 19 and 26 allow the CCI to act on information received, not

just a formal complaint.

3. There is a statement added to Section 32, explicitly allowing the CCI to pass orders

against acts of firms outside India that adversely affect competition in India. The

original phrasing seemed to suggest that the CCI could only inquire into such acts.

4. The bill also proposes to delete the ill advised clause that allowed the CCI to issue

temporary injunctions to restrain any party from importing goods.

33

5. The CCI has not been given powers of search and seizure, which are crucial in

obtaining evidence in cartel cases in Europe and the US, and are even available in

Section 12(5) of the outgoing MRTP Act.

6. Section 21 of the act is to be amended so that when the CCI is asked by a statutory

authority to give its opinion on any decision that might infringe the Competition Act,

the authority is now required to record its response to the CCI opinion.

7. Section 49, which allowed the central government to seek the CCI’s opinion on

formulating a policy on competition, is now to be extended to state governments.

Another measure is in the transition arrangements for dealing with cases pending before the

MRTP Commission(MRTPC). The Competition Act originally envisaged their immediate

transfer to the CCI. The new bill sensibly proposes to give the MRTPC two years to clear the

backlog, so the CCI can concentrate on the Competition Act. But no change is proposed in the

clauses transferring ongoing investigations for these MRTP cases to the CCI

Additional proposals

1. Establishment of a Competition Appellate Tribunal (CAT) to hear appeals against the

orders of the CCI and adjudicate compensation claims arising out of the finding of the

CCI or orders of the tribunal.

2. Age limit of chair person and other members restricted to 65 years.

ADVANTAGES OF THE COMPETITION ACT:

1) The foremost objective of the act is to create an environment conducive to

competition. The act does not condemn or oppose the existence of a monopoly in the

relevant market.

2) The operation of the act is not confined to transactions strictly within the boundaries

of India but also such transactions involving entities exixting or established overseas.

3) Explicit definitions and criteria have been specified in order to access whether a

practice has an appreciable adverse effect on competition.

34

4) It is the intention of our legislators that provisions of the act in its extant form should

not be considered to be immutable and unchangeable.The intention is promotion of

competition advocacy,creating awareness and imparting training about competition

issues.

SHORTCOMINGS OF THE COMPETITION ACT:

1) It is a body to which the appeals lie and not an investigative agency that proactively

goes and seeks out industrial monopolistic practice. As the executive body is

contemplated at present, it is likely to be a haven for senior bureaucrats, businessmen

and technocrats enjoying positions of sinecure.

2) There is a lack of mandatory provision compelling persons or entities whether public

or private to approach the commission that is compounded by the corresponding

logistical limitations of the commission to be able to take cognizance on its own

motion of every malpractice in the economy.

3) The IPR laws have overriding powers over the Competition Act in matters related to

competition abuses.

4) The act provides for exemptions to mergers and abuse of dominance on grounds like

‘economic development’ and ‘public interest’ and in the absence of any clear

definition/criteria the relevant provisions would be open to varying interpretations.

5) The provisions in context of the autonomy of the CCI mainly aim at keeping a check

on CCI’s functioning by limiting its independence.

35

CASE STUDY

1) JET SAHARA

Merger With Air Sahara

On January 19, 2006 Jet Airways announced that it was to buy Air Sahara for $500

million in an all-cash deal. Everything, including Sahara's assets and infrastructure, would

belong to Jet Airways. This deal would have been the biggest in India's aviation history and the

resulting airline the country's largest, had it gone through.

Market reaction to the deal was mixed, with many analysts suggesting that Jet Airways

was paying too much for Air Sahara. The deadline for the deal to be completed was June 21,

2006, but in the days before this, the chances of the takeover being completed began to look

shakier. Jet Airways claimed that a final sticking point was the government's delay in approving

Jet chairman Naresh Goyal's appointment to the Air Sahara board. Air Sahara countered that Jet

Airways had engineered this impasse by delaying the request for such approval, as a way of

extricating themselves from a deal they now regretted. Jet was said to be willing to go ahead with

the deal only if the originally agreed price was lowered by 20-25% on the basis of Air Sahara's

mounting debts, an option which was firmly rejected by Air Sahara. Finally both sides confirmed

that the deal was off. Following the failure of the deals, the companies have now filed lawsuits

seeking damages from each other.

36

L&T AND (Grasim) BIRLA

The Take-Over

The takeover of L&T shares was a complicated process involving L&T demerging its cement

business into Ultra Tech Cemco and Grasim making an open offer for it. The stakes were

transferred between employee and family trusts in a dizzying 3-layered share transaction, ending

with Grasim holding the majority stake. All sections of shareholders -- FIs and small

shareholders -- participated in the open offer.

A Different Perspective on the Deal

A little more than three years ago management consulting firm Boston Consulting Group advised

that the Rs. 8,000-crore (Rs. 80-billion) engineering company L&T should exit cement. BCG's

prescription is being followed and the Rs. 2,200 crore (Rs. 22 billion) deals were finally sealed .

Grasim will own 51.5 per cent stake in L&T's 16.5 million tonne cement business, which is to be

hived into a new company.

L&T's 16.4 million tonne capacity is now being combined into Grasim's own 14.5 million

tonne capacity. There are serious financial implications.

The Rs. 4,000-odd crore (Rs.40 billion) acquisition costs (including the Rs. 1,860 crore debt

liability) will start yielding respectable returns only after three years.

The cement acquisition now catapults Kumarmangalam Birla to top of the heap in the

country's 31 million tonne per annum (tpa) combined cement capacity. He is also the seventh

largest cement producer in the world.

What's more, Grasim now becomes the world's largest cement producer in a single

geography. So what was initially a pure financial investment with 10.5 per cent of L&T in

November 2001-- when it bought out Reliance Industries' stake in the company -- became a

rallying point to get full management control.

By the first week of January, Grasim came back to the table with an "alternative proposal". It

entailed Grasim swapping its 15 per cent stake in the parent L&T with the 40 per cent stake held

by the financial institutions in the cement company. Thus, it would be left with a clean,

37

indisputable 55 per cent stake in the cement company while making an honourable exit from the

core company.

Future of UltraTech Cement:

UltraTech's distribution network is very widely spread out in the country with over 5,500

dealers and 30,000 retailers. UltraTech enjoys a leadership position in all of the markets that it

serves. The Company has enlisted the support of all of its business associates. This includes

dealers, stockiest, retailers, builders and engineers among others.

Between UltraTech and Grasim, the Aditya Birla Group's cement capacity is in excess of 31

million tpa, of which 17 million tpa capacity comes from UltraTech. This makes the Aditya Birla

Group the eighth largest cement player in the world.

The Group now has 11 composite plants, seven split grinding units, four bulk terminals

(inclusive of one in Sri Lanka), and eight ready mix concrete plants. This accords the Group a

strong national presence in the cement sector, with a leadership position in several states.

India has enormous potential for growth, given the lower per capita consumption of only 110

kilos against the global average of 260 kilos at present. The per capita consumption of cement in

India is perhaps the lowest in South East Asia. In Thailand it is 293 kilos, China — 429 kilos,

Malaysia — 529 kilos, and in South Korea — 951 kilos. India thus offers a tremendous growth

opportunity given its lower per capita consumption.

The shareholding pattern of UTCC is 51 per cent with Grasim, 12 per cent with financial

institutions, 11.5 per cent with L&T and the remaining with institutional and retail shareholders.

The transaction has created value for Grasim and L&T stakeholders, the share prices of L&T

and Grasim since the June 2003 announcement of the intention of de-merger, have out-

performed the BSE Sensex and there has been an overwhelming response to the open offer.

Grasim Industries is India’s largest cement maker with a capacity to make about 33 million

tonnes a year, a shade larger than its nearest rival, the Holcim-Gujarat Ambuja-ACC combine,

which makes about 31 million tonnes. Mr. Birla also outlined an ambitious expansion

programme for UltraTech. The company’s capex plans include an expenditure of around Rs

1,424 crore to be spent over the next three years. Of this, Rs 844 crore is for captive power plants

in Gujarat and Chhatisgarh. The company also wants to tap the growing cement market in

southern India and is scheduled to invest Rs 1,274 crore for a 4-million tonne plant in Andhra

Pradesh. This also includes 1.3 million-tonne split grinding unit and a 46-MW power plant.

38

The government’s initiatives on infrastructure development and the boom in the housing

sector are major growth drivers for the cement industry. The Indian cement sector is the world’s

second-largest after China.In the medium term, the demand and supply situation is expected to

be in a state of balance, before the next cycle of new capacity enters the market.

39

NETSCAPE V/S MICROSOFT

Netscape Communications, a division of AOL Time Warner, filed suit against Microsoft

claiming that the software giant's business practices crushed the onetime upstart's Internet

browser.

The lawsuit alleges that, beginning in 1995, Microsoft harmed Netscape in a series of illegal acts

aimed at promoting Microsoft's Internet Explorer browser at the expense of Netscape Navigator,

the Web browser by Netscape many credit with having been the catalyst for consumer adoption

of the Internet. The suit seeks injunctive relief sufficient to prevent further antitrust injury to

Netscape and an award of treble damages to be determined at trial.

In November 1999, Judge Thomas Penfield Jackson had also found that while Microsoft had

improperly used its dominance of the PC operating system market to grab a 60 percent share of

the browser market.

"Netscape's lawsuit is a sort of an extension of the findings entered by the District Court and

unanimously affirmed by the Court of Appeals that Microsoft thwarted competition, violated the

antitrust laws and illegally preserved its monopoly at Netscape's expense.

Netscape was seriously damaged by Microsoft's (illegal) conduct in at least the following ways:

it lost browser licensing revenues; it lost browser market share that would have led to other

significant sources of revenues, including portal revenues and revenues from its enterprise

software and products businesses; its marketing and distribution costs were significantly

increased; it lost goodwill and going concern value; and it lost the profits that would have existed

if Microsoft had not acted illegally to prevent Netscape's browser technology from providing a

competitive alternative to Microsoft's monopoly operating system as a development platform

40

COMPARISON BETWEEN MRTP ACT,1969 & COMPETITION ACT

S.No MRTP Act, 1969 Competition Act, 2002

1 Based on the pre-reforms scenario Based on the post-reforms scenario

2 Based on size as a factor Based on structure as a factor

3 Competition offences implicit or not defined

Competition offences explicit and defined

4 Complex in arrangement and language Simple in arrangement and language and easily comprehensible

5 14 per se offences negating the principles of natural justice

4 per se offences and all the rest subjected to rule of reason.

6 Frowns upon dominance Frowns upon abuse of dominance

7 Registration of agreements compulsory No requirement of registration of agreements

8 No combinations regulation Combinations regulated beyond a high threshold limit.

9 Competition Commission appointed by the Government

Competition Commission selected by a Collegium (search committee)

10 Very little administrative and financial autonomy for the Competition Commission

Relatively more autonomy for the Competition Commission

11 No competition advocacy role for the Competition Commission

Competition Commission has competition advocacy role

12 No penalties for offences Penalties for offences

13 Reactive and rigid Proactive and flexible

14 Unfair trade practices covered Unfair trade practices omitted (consumer fora will deal with them)

15 Does not vest MRTP Commission to inquire into cartels of foreign origin in a direct manner.

Competition Law seeks to regulate them.

16 Concept of ‘Group’ Act had wider import and was unworkable

Concept has been simplified

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Critical comments on the Competition Act

Though the Act substantially covers all aspects, it still leaves ample scope for improvements.

Assimilation of CCI as a corporate body and at the same time describing it as a Tribunal makes it

of a somewhat hybrid character. Though as a corporate body it can sue and be sued, as a quasi-

judicial body it cannot, generally do so. The position has to be clarified.

There are two provisions in the Act which substantially defeat its independence. Section 50

provides for grants by the Central Government to CCI. The Act provides that the salaries of the

staff and other expenses shall be met by the Competition Fund. Here lies the catch. Such a

provision takes away the independence and autonomy of CCI by including grants by the Central

Government as a part of the constitution of the Competition Fund. Thus, CCI has to circuitously

depend on the Central Government for meeting its infrastructural and other expenses. Further,

CCI is bound to follow any policy directions given by the Central Government. And, Section 56

empowers the Central Government to supersede CCI by issuing a notification and giving reasons

for the same. CCI being a quasi-judicial body would be appointed by the executive and such

power to supersede would severely affect the independent functioning of the Commission. On

one hand, it is said that CCI is a quasi-judicial body and on the other hand, the Act mandates that

its decisions are not final. Even the MRTP Act never had any such provision.

Some of the market analysts have apprehended that implementation of the Act in its present form

will be nothing less than a declaration to kill our national companies. The Act talks of

competition but, at the national level, it is a competition between a mouse and a cat. The Act is

opening the entire country to the world for competition. The Act does not retain any specific

provisions to protect the interests of the domestic industry, which is exposed to international

competition unlike the US law. There Section 201 of the Trade Act, 1974 of the US has been

applied to increase imports regardless of whether their importation is the result of any unfair

competition. The only concern under Section 201 is whether the imports are a substantial cause

of serious injury to a US industry; the specific trading practices of the foreign seller, fair or

unfair, are irrelevant. If the requisite injury and causation are established, and relief ordered and

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accepted by the President, that relief operates against all imports i.e. from all foreign producers

in all countries.

Similarly, Title VII of the Trade Agreements Act of 1979 and Section 337 of the Tariff Act of

1930 apply broadly to “unfair methods of competition and unfair acts” in US import trade, but in

practice it has been applied essentially to exclude imports that infringe on US patent rights or

violate other intellectual property rights, such as trademarks and copyrights. Looked in this

perspective it is felt that the legislature must incorporate provisions to safeguard the domestic

industries against the fierce global economic competition.

Cartels, particularly the hard-core cartels have a grave and adverse effect on the economy and

consumers, and as they are difficult to detect and prove, the provisions should be as deterrent as

possible. It is suggested that to make the law more preventive, the Act should incorporate

criminal proceedings against the persons involved at the appropriate criminal court in case the

cartel is proved. The UK recently amended its competition law to include personal criminal

liability. The relevant law of the US also incorporates such penal provisions and experience has

shown that they have had a considerable deterrent effect.

Further, the Act fails to provide a “stick and carrot” approach in the form of heavy fines and

criminal proceedings against the violators coupled with the promise of leniency for the whistle-

blower which has been proved to be very effective in uncovering and prosecuting hard-core

cartels in many countries including the US and EU.

Article 40 of TRIPS provides for control of anticompetitive practices in contractual licences. It

says that TRIPS does not prevent countries from specifying in their legislation licensing

practices or conditions that may in practice constitute an abuse of intellectual property rights

(“IPRs”) having an adverse effect on competition in the relevant market. Similarly, Article 31 of

TRIPS allows granting of compulsory licences in anticompetitive situations. A good competition

law cannot afford to be silent in addressing IPRs in this fast-changing global economic

environment. But the Indian law vide Section 3(5) of the Act excludes “licensing agreements”

with respect to IPRs from the purview of regulating anticompetitive agreements. Often it has

been experienced that IPR relationship between two firms end up in cartels or anticompetitive

conducts. CCI is required to keep an eye on such relationships as a part of its proactive role. So,

unless there is some provision with respect to IPR in the Act, CCI may tend to ignore such

relationships as the same does not lie under its jurisdiction.

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The Act regulates only those mergers and acquisitions which qualify under the definition of

“combination” under Section 5. In practice, there may come up a situation where a merger may

not come under the definition of “combination” under Section 5, largely because of the

benchmarks prescribed therein, yet it may give rise to grave anticompetitive practices. This

situation has to be avoided.

Further, mergers of companies are being governed by the High Courts and the Securities and

Exchange Board of India, and now the same would be within the purview of CCI. It is felt that

this may give rise to a peculiar situation where there may be overlapping of powers of three

distinct forums with regard to mergers.

Section 19(3) of the Act lays six factors for determining “whether an agreement has an

appreciable adverse effect on competition”.Yet the language of the sub-section tends to create

confusion while interpreting the same. Clauses (a) to (c) of Section 19(3) are the grounds which

the Commission may consider while establishing “appreciable adverse effect”, whereas clauses

(d) to (f) provide the defences and exemptions which may be relevant to negate the presence of

“appreciable adverse effect”. The intent would have been clearer had separate sections on both

these aspects been provided.

The Act confers an option on any statutory body to make a reference to CCI with respect to a

decision which the statutory authority has taken or proposes to take, is or is likely to be contrary

to any of the provisions of the Act. However, for making such a reference the condition

precedent is raising of the same issue by any party before it. It is suggested that apart from issue

being raised by any party, any statutory authority also on its own should have been allowed to

make such a reference.

Further, CCI should also have been empowered, on approval by the Central Government, to

inquire and investigate on its own in any sector being regulated by a statutory authority, if it feels

that an anticompetitive situation has arisen or is likely to arise.

Finally, Section 32 authorises CCI only to “inquire” for acts taking place outside India but

having an effect on competition in India. It is suggested that CCI should have also been given

powers to pass appropriate “orders” apart from inquiring in such matters. The Act should also

have incorporated provisions conferring necessary powers to the Commission seeking

cooperation from authorities in other countries in investigation and implementation of its orders

with respect to cross-border anticompetitive practices.

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CONCLUSION

All of us can agree on the benefits of adopting and enforcing a transparent and nondiscriminatory

competition law. First, at the domestic level, the enforcement of competition rules prevents

monopolization, as well as collusive and exclusionary practices that enable firms with market

power to unfairly confiscate the benefits of economic activity that should accrue to consumers

and competitors.

Second, at the international level, history demonstrates that cross border cartels tend to operate in

countries without competition laws to enhance their immunity from prosecution; they likewise

tend to avoid countries that have actively enforced competition laws. I also doubt that other

anticompetitive actors have any qualms about foisting the costs of their conduct on consumers in

countries that lack a competition law. Adopting a competition law is thus an important means for

protecting one's own consumers from the cross-border anticompetitive practices of firms.

Third, competition authorities can be agents of market-opening change in their countries through

their role as competition advocates. Several competition authorities in Latin and South America

have recently contributed greatly to eliminating restrictive regulations in sectors that were

previously not open to competition, through advocacy on behalf of privatization or deregulation.

We too continue to advocate aggressively on behalf of competition principles with the federal

electricity regulator, the various state public utility commissions, the federal communications

agency and entities that help to shape intellectual property policy.

But promoting competition in any country is a challenge, precisely because the benefits of

competition are long term and are distributed broadly among all consumers, whereas the benefits

of protection are immediate and concentrated on a few recipients. Thus, powerful and well

organized lobbies tend to be quite effective in preventing the emergence of competition. Yet just

where these lobbies may be most powerful -- in smaller, developing markets with narrow

economic bases and concentrated industrial sectors -- is where anticompetitive practices are most

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likely to flourish and where the need is greatest to promote competition through privatization,

deregulation and the adoption of a competition law.

The Indian legislature deserves accolades for the introduction this much-needed piece of

legislation. In retrospect, the highlight of the Act is its intent, which not only prohibits

anticompetitive agreements, which are detrimental to the consumers and the market, but also

prohibits any agreement that is likely to cause an appreciable adverse effect on competition.

In a developing economy like India where economic power is not fairly distributed, this new

competition policy is expected to play the dual role of raising the power, within reasonable

bounds, of underprivileged economic agents to become viable participants in the process of

competition on the one hand, and of establishing the rules of fair and free competition on the

other.

If these two objectives are not met, unfettered competition will simply help a handful of

privileged big firms to monopolize domestic markets that are usually protected through import

restrictions. This will then give rise to public dissatisfaction.

Secondly, “fair and free” competition is an essential requirement for sustained economic growth.

Without fairness, freedom alone may not achieve the desirable outcomes expected from

competition, especially in developing economies where unfair elements can be exacerbated by

competition.

India is likely to emerge as the second largest market in the world in the not so distant future. In

this scenario the CCI will be expected to play a balanced role, protecting both consumers’

interests and the interests of the businessmen. The CCI will also have an important task of

collaborating with the various sectoral regulators and herein competition advocacy will play and

important role.

The CCI has the power to:

Issue cease and desist orders

Grant interim relief

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Award compensation

Impose fines and

Order division of dominant undertakings

Despite the practical importance of fairness in competition policy, it would be difficult to have a

practical yet socially agreed-upon concept of fairness due to diverse individual value judgments.

CCI should therefore bear in mind the global rules of the economic game while implementing

the Act.

However, non-issuance of notification till date by the Government regarding the Act, has taken

the wind out of the new competition policy. As a result, the proposed CCI has not become

functional and the matters are still looked into by the obsolete MRTP Commission.

The act is comprehensive enough and meticulously carved out to meet the requirements of the

new era of market economy, which has dawned upon the horizon of Indian economic system. It

is in synchronization with other set of policies such as liberalized trade policy, relaxed FDI

norms, FEMA, deregulation etc, that would ensure uniformity in overall competition policy. It’s

just a matter of time when the Act is made effective and CCI becomes functional, which would,

in turn, help realize our aspiration to catch up with the global economy.

The Act is truly reflective of changing economic milieu of our country and is well equipped to

promote fair competition and take care of impinging market practices, facilitate domestic players

vis-à-vis outsiders, safeguard the interests of consumers and thus, ensure vibrancy and stability

in the Indian market.

The need for reforms in the legal system with regard to corporate law and competition law has

been rightly recognised by the Indian judiciary in a multitude of cases. However, the reforms

have not been smooth or speedy which has resulted in a stagnation of the legal framework

guiding the corporate sector. The reforms needs to be undertaken as fast as possible to ensure

that the development of the nation does not take a backseat due to the pending legal reforms.

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Reform must provide for good corporate governance, less of Government control and

interference, protection of consumers and public interest, rewarding the merits and all to be

achieved as soon as possible because world has also options available other than India.

The efficacy of the act will be seen in its implementation. But is the Competition Act truly

reflective of the changing economic milieu of our country? In an economic situation, which can

be best described as a mixed economy; only time will tell whether the Competition Act addresses

the ground realities that exist today. However, the new Act is definitely a step in the right

direction by harmonizing the competition policy with international trade and policy.

The purpose of competition policy and competition law … is to protect competition and economic

efficiency, not to protect competitors. It’s to protect the efficiency of the process, not the existence or the

viability of individual companies.

Competition law is essentially a back-up. If the market runs beautifully, the Commissioner should be

asleep. … The reality is the market does not work on a perfectly good self-sustaining basis and there are

competitors who will seek to fix prices. There are competitors who will exercise their market power in

ways that are unacceptable to society and we simply have to hit them … and say "no."

----- Competition commission of India

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BIBILIOGRAPHY

Books

Corporate Law -- By Taxman

Corporate Laws and Secretarial Practice -- By G.K.Kapoor

Websites

www.competition-commission-india.nic.in

www.laws4india.com

www.ftc.gov.in

www.unctadxi.org

www.mti.gov.sg

www.blonnet.com

www.iimahd.ernet.in

www.cbdd.wsu.edu

www.oft.gov.uk

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