Legal Regulation Final

8/4/2019 Legal Regulation Final

1/30

A

TERM PAPER

ON

COMPETITION AND CONSUMER LAW

Submitted to:

SIR L.A. SHAH LAW COLLEGE

Submitted By:

CHAUHAN BRIJESH R

LL.M SEMESTER I

GROUP: C (BUSINESS LAW)

BATCH: (2011-2012)

ROLL NO: 07

SUBJECT: LEGAL REGULATION

1


2/30

PREFATORY

Since attaining Independence in 1947, India, for the better part of half a century

thereafter, adopted and followed policies comprising what are known as Command-and-Control laws, rules, regulations and executive orders. The competition law ofIndia, namely, the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act,for brief) was one such. It was in 1991 that widespread economic reforms wereundertaken and consequently the march from Command-and-Control economy to aneconomy based more on free market principles commenced its stride. As is true ofmany countries, economic liberalisation has taken root in India and the need for aneffective competition regime has also been recognised. (For a history of evolution ofcompetition policy in several countries, see Ewing, 2003).

In the context of the new economic policy paradigm, India has chosen to enact a new

competition law called the Competition Act, 2002 (Act, for brief). The MRTP Act hasmetamorphosed into the new law, Competition Act, 2002. The new law is designed torepeal the extant MRTP Act. As of now, only a few provisions of the new law have

been brought into force and the process of constituting the regulatory authority, namely,the Competition Commission of India under the new Act, is on. The remaining

provisions of the new law will be brought into force in a phased manner. For thepresent, the outgoing law, MRTP Act, 1969 and the new law, Competition Act, 2002 areconcurrently in force, though as mentioned above, only some provisions of the new lawhave been brought into force.

TRIGGER CAUSE

Competition Law for India was triggered by Articles 38 and 39 of the Constitution ofIndia. These Articles are a part of the Directive Principles of State Policy. Pegging onthe Directive Principles, the first Indian competition law was enacted in 1969 and waschristened the MONOPOLIES AND RESTRICTIVE TRADE PRACTICES ACT,1969 (MRTP Act). Articles 38 and 39 of the Constitution of India mandate, inter alia,that the State shall strive to promote the welfare of the people by securing and protectingas effectively, as it may, asocial order in which justice social, economic and political shall inform all the

institutions of the national life, and the State shall, in particular, direct its policy towardssecuring

1. that the ownership and control of material resources of the community are sodistributed as best to subserve the common good; and

2. that the operation of the economic system does not result in the concentrationof

wealth and means of production to the common detriment.

2


3/30

In line with the Antitrust legislation being an integral part of the economic life in manycountries, Indias outgoing law, namely, the MRTP Act is regarded as the competitionlaw ofIndia, because it defines a restrictive trade practice to mean a trade practice, which has,or may have the effect of preventing, distorting or restricting competition in any manner.

But the MRTP Act, in comparison with competition laws of many countries, isinadequate for fostering competition in the market and trade and for reducing, if noteliminating, anti-competitive practices in the countrys domestic and international trade.

The MRTP Act drew heavily upon the laws embodied in the Sherman Act and theClayton Act of the United States of America, the Monopolies and Restrictive TradePractices (Inquiry and Control) Act, 1948, the Resale Prices Act, 1964 and theRestrictive Trade Practices Act, 1964 of the United Kingdom and also those enacted inJapan, Canada and Germany. The U.S. Federal Trade Commission Act, 1914 asamended in 1938 and the Combines Investigation Act, 1910 of Canada also influencedthe drafting of the MRTP Act.

Premises on which the MRTP Act rests are unrestrained interaction of competitiveforces, maximum material progress through rational allocation of economic resources,availability of goods and services of quality at reasonable prices and finally a just andfair deal to the consumers. An interesting feature of the statute is that it envelops withinits ambit, fields of production and distribution of both goods and services.

THRUST AREAS

Three areas informed till 1991 (when the MRTP Act was amended) the regulatoryprovisions of the MRTP Act, namely, concentration of economic power, competitionlaw and consumer protection. A criticism is often voiced that the statute was designedto prohibit growth. This is fallacious and erroneous. The statute, till 1991 regulatedgrowth but did not prohibit it. Even in its regulatory capacity, it controlled the growthonly if it was detrimental to the common good. In terms of competition law andconsumer protection, the objective of the MRTP Act is to curb Monopolistic, Restrictiveand Unfair Trade Practices which disturb competition in the trade and industry andwhich adversely affect the consumer interest (Monopolistic, Restrictive and UnfairTrade Practices are described later in this paper). A parallel legislation known as theConsumer Protection Act, 1986 has also come into being, which prevails essentially inthe realm of Unfair Trade Practices.

One could argue that the consumers need no special protection as they can be left to themarket forces. But a perfectly competitive market is just an utopia and the consumersovereignty a myth. Products are of great variety, many of them are complex and theconsumer has imperfect product knowledge. The supplier often has a dominant positionvis--vis the buyer who has little or no bargaining power in the market. There has beena growing realisation for not depending on the old doctrine of Caveat Emptor let the

buyer beware. The consumer, therefore, needs and deserves legal protection againstcertain trade practices, business methods and unscrupulous forces.

In many countries and in particular developing countries like India, a large number of

consumers are illiterate and ill-informed and possess limited purchasing power in an

3


4/30

environment, where there is shortage of goods. Very often, one witnesses the spectacleof a large number of non-essential, sub-standard, adulterated, unsafe and less useful

products being pushed through by unscrupulous traders by means of Unfair TradePractices and deceptive methods. Subtle deception, half truths and misleadingomissions inundate the advertisement media and instead of the consumer being provided

with correct, meaningful and useful information on the products, they often get exposedto fictitious information which tends to their making wrong buying decisions.Transparent information is missing and needs to be a goal to be chased.

The regulatory provisions in the MRTP Act apply to almost every area of business production, distribution, pricing, investment, purchasing, packaging, advertising, salespromotion, mergers, amalgamations and take over of undertakings (provisions relatingto mergers, amalgamations and take-overs were deleted in the MRTP Act by the 1991amendments to it). They seek to afford protection and support to consuming public byreducing if not eliminating from the market Monopolistic, Restrictive and Unfair TradePractices. One of the main goals of the MRTP Act is to encourage fair play and fair

deal in the market besides promoting healthy competition. Under the MRTP Act, aRegulatory Authority called the MRTP Commission (briefly, Commission) has been setup to deal with offences falling under the statute.

OBJECTIVES

The principal objectives sought to be achieved through the MRTP Act are:

i) prevention of concentration of economic power to the common detriment;ii) control of monopolies;iii) prohibition of Monopolistic Trade Practices (MTP);

iv) prohibition of Restrictive Trade Practices (RTP);v) prohibition of Unfair Trade Practices (UTP).

AMENDMENTS IN 1991 AND SHIFT IN EMPHASIS

The MRTP Act, 1969 was amended in 1991 as a part of the new economic reforms setin motion by the Government of that day. The amendments reset the objectivesenshrined in the original statute of 1969. Out of the five objectives aforesaid in the

previous paragraph, the first two have been de-emphasized, after the 1991 amendmentsto the MRTP Act. The emphasis has not only shifted to the three last mentioned

objectives but they have been re-emphasised. In the context of the objective (ii) above,to the extent monopolies tend to bring about Monopolistic Trade Practices, the MRTPAct continues to exercise surveillance which existed prior to the 1991 amendments.This is because a Monopolistic Trade Practice is understood to be synonymous withanti-competitive practice. Anything, which distorts competition, can lead to a monopolysituation. Anything, which is likely to prevent or distort competition, is regulated by thestatute. Tersely, the MRTP Act is designed against different aspects of marketimperfections. For instance, before the 1991 amendments to the MRTP Act, a mergerwhich increased the dominance of the combine or resulted in a large share in the marketcould be looked at in terms of the provisions thereof and the objectives governing them.

4


5/30

Monopoly is a concept of power which manifests itself in ones power to:-

i) control production, supply, etcii) control pricesiii) prevent, reduce or eliminate competition

iv) limit technical developmentv) retard capital investmentvi) impair the quality of goods.

The MRTP Act, before the 1991 amendments sought to curb such power arising out of amonopoly.

Prior to the 1991 amendments, the MRTP Act essentially was implemented in terms ofregulating the growth of big size companies called the monopoly companies. In otherwords, there were pre-entry restrictions therein requiring undertakings and companies

with assets of more than Rs.100 crores (about US $22 million) to seek approval ofGovernment for setting up new undertakings, for expansion of existing undertakings,etc.

Major amendments were effected to the MRTP Act in 1991. Provisions relating toconcentration of economic power and pre-entry restrictions with regard to prior approvalof the Central Government for establishing a new undertaking, expanding an existingundertaking, amalgamations, mergers and take-overs of undertakings were all deletedfrom the statute through the amendments. The causal thinking in support of the 1991amendments is contained in the Statement of Objects and Reasons appended to the 1991Amendment Bill in the Parliament, extract in part of which, runs as follows:

With the growing complexity of industrial structure and the need for achievingeconomies of scale for ensuring higher productivity and competitive advantage in theinternational market, the thrust of the industrial policy has shifted to controlling andregulating the monopolistic, restrictive and unfair trade practices rather than making itnecessary for certain undertakings to obtain prior approval of the Central Governmentfor expansion, establishment of new undertakings, merger, amalgamation, take over andappointment of Directors. It has been the experience of the Government that pre-entryrestriction under the MRTP Act on the investment decision of the corporate sector hasoutlived its utility and has become a hindrance to the speedy implementation ofindustrial projects. By eliminating the requirement of time-consuming procedures and

prior approval of the Government, it would be possible for all productive sections of thesociety to participate in efforts for maximisation of production. ..The criteria for determining dominance, is proposed to be determined only onthe basis of market share of 25% of the total goods produced, supplied, distributed orservices rendered in India or substantial part thereof.

With the restructuring of the MRTP Act through the 1991 amendments, the thrustthereof is on curbing Monopolistic, Restrictive and Unfair Trade Practices with a viewto preserving competition in the economy and safeguarding the interest of consumers by

providing them protection against false or misleading advertisements and/or deceptive

5


6/30

trade practices. Size as a factor, to discourage concentration of economic power, hasbeen, in a manner of speaking, given up.

DOCTRINE GUIDING THE ACT

Behavioural and reformist doctrines inform the MRTP Act. In terms of the behaviouraldoctrine, the conduct of the entities, undertakings and bodies which indulge in trade

practices in such a manner as to be detrimental to public interest is examined withreference to whether the said practices constitute any Monopolistic, Restrictive or UnfairTrade Practice. In terms of the reformist doctrine, the provisions of the MRTP Act

provide that if the MRTP Commission, on enquiry comes to a conclusion that an errantundertaking has indulged either in Restrictive or Unfair Trade Practice, it can direct suchundertakings to discontinue or not to repeat the undesirable trade practice. The MRTPAct also provides for the acceptance of an assurance from an errant undertaking that ithas taken steps to ensure that prejudicial effect of trade practice no more exists. Theveneer of the MRTP Act is essentially based on an advisory or reformist approach.

There is no deterrence by punishment.

With this backdrop, some of the important provisions of the MRTP Act are listed in thenarrative that follows, wherein the dimensions relating to Restrictive Trade Practices,Unfair Trade Practices, Monopolistic Trade Practices, Goods and Dominance arecovered.

A Restrictive Trade Practice (RTP) is generally one which has the effect ofpreventing, distorting or restricting competition. In particular, a practice, which tends toobstruct the flow of capital or resources into the stream of production, is a 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 restrictionsis regarded as Restrictive Trade Practice. Certain common types of Restrictive TradePractices enumerated in the MRTP Act are:

i) Refusal to dealii) Tie-up salesiii) Full line forcingiv) Exclusive dealingsv) Price discriminationvi) Re-sale price maintenancevii) Area restriction

All Restrictive Trade Practices under the MRTP Act are deemed legally to be prejudicialto public interest. The onus is, therefore, on the entity, body or undertaking charged withthe perpetration of the Restrictive Trace Practice to plead for gateways provided in theMRTP Act itself to avoid being indicted.

If the gateways are satisfactory to the Commission and if it is further satisfiedthat the restriction is not unreasonable having regard to the balance between thosecircumstances and any detriment to the public interest or consumers likely to result fromthe operation of the restriction, the Commission may arrive at the conclusion that the

RTP is not prejudicial to public interest and discharge the enquiry against the charged

6


7/30

party. Furthermore, if a trade practice is expressly authorised by any law for the timebeing in force, the Commission is barred from passing any order against the chargedparty.

Prior to 1984, the MRTP Act contained no provisions for protection of

consumers against false or misleading advertisements or other similar unfair tradepractices and a need was felt to protect them from practices, resorted to by the trade andindustry, to mislead or dupe them (Sachar Committee, 1978). To quote the SacharCommittee: Advertisement and sales promotion have become well established modesof modern business techniques. That advertisement and representation to the consumersshould not become deceptive has always been one of the points of conflicts between

business and consumer. The Sachar Committee therefore recommended that a separateChapter should be added to the MRTP Act defining various Unfair Trade Practices sothat the consumer, the manufacturer, the supplier, the trader and other persons in themarket can conveniently identify the practices, which are prohibited. Essentially UnfairTrade Practices (UTP) falling under the following categories were introduced in 1984 in

the MRTP Act :-

(i). Misleading advertisement and false representation.(ii). Bargain sale, bait and switch selling.

(iii). Offering of gifts or prizes with the intention of notproviding

them and conducting promotional contests.(iv) Product safety standards.(v) Hoarding or destruction of goods.

Making false or misleading representation of facts disparaging the goods, services ortrade of another person is also a prohibited trade practice under the Indian law.

The Monopolistic Trade Practice (MTP) came into the statute by an amendmentto the Act in 1984. An MTP is a trade practice which has or is likely to have the effectof:

i) maintaining the prices of goods or chargesfor the services at an unreasonable level bylimiting, reducing or otherwise

controlling the production, supply

or distribution of goods or the supply of anyservices or in any other manner;ii) unreasonably preventing or lessening

competition in the supply or distribution ofany goods or in the supply of any

services;iii) limiting technical development or capital

investment to the detriment or allowing thequality of any goods produced, supplied orany services rendered, in India, todeteriorate;

7


8/30

iv) increasing unreasonably:-a) the cost of production of any goods;

orb) charges for the provision, or

maintenance, of any services;

v) increasing unreasonably:-a) the prices at which goods are, or

may be, sold or re-sold, or thecharges at which the services are, ormay be, provided; or

b) the profits which are, or may be,derived by the production, supply ordistribution (including the sale or

purchase of any goods) or in the provision or maintenance of anygoods or by the provision of any

services;vi) preventing or lessening competition in the

production, supply or distribution of anygoods or in the provision or maintenanceof any services by the adoption of unfair

methods or unfair or deceptivepractices.

In the MRTP Act, the basis of determining dominance is whether an undertakinghas a share of 25% or more in the production, supply distribution or control of goods orservices. Goods include products manufactured, processed or mined in India, shares andstocks and goods imported into India. Prior to the 1991 amendments to the MRTP Act,dominance had relevance in that, a dominant undertaking could not expand orcommence a new undertaking without the approval of the Government under the saidAct. After 1991, with the deletion of the provisions relating to dominant undertakings,the concept of dominance has lost its significance.

During the year 1991, a notification was issued by the Government that theMRTP Act shall apply to public sector undertakings whether owned by the Governmentor by Government companies, statutory corporations, undertakings under theManagement of various controllers appointed under any law, cooperative societies and

financial institutions. Thus, there is no distinction now between the public sectorundertakings and private sector companies in the matter of Monopolistic, Restrictive andUnfair Trade Practices. Indian Airlines, Nationalised Banks, Indian Railways, Post andTelegraphs and Tele-Communications Undertakings, Housing and Urban DevelopmentAuthorities are all accountable if they indulge in MTP, RTP or UTP. There are of coursea few entities like Defence undertakings which are still outside the ambit of the MRTPAct. It may also be mentioned here that after the amendment to the definition ofservice, it includes the business of builders and real estate operators. This has broughta large number of buildings activity operators under the mischief of the MRTP Act.

8


9/30

The MRTP Act is administered by the MRTP Commission, which is assisted bythe Director General of Investigation and Registration for carrying out investigations,for maintaining register of agreements and for undertaking carriage of proceedingsduring the enquiry before the MRTP Commission. The powers of the Commissioninclude the power vested in a Civil Court and include further power: -

i) to direct an errant undertaking to discontinue a tradepractice and not to repeat the same;

ii) to pass a cease and desist order;iii) to grant temporary injunction, restraining an errant

undertaking from continuing an alleged trade practice;iv) to award compensation for loss suffered or injury

sustained on account of RTP, UTP or MTP;v) to direct parties to agreements containing restrictive

clauses to modify the same;vi) to direct parties to issue corrective advertisement;

vii) to recommend to the Central Government, division ofundertakings or severance of inter-connection betweenundertakings, if their working is prejudicial to publicinterest or has led or is leading to MTP or RTP.

The MRTP Commission can be approached with a complaint on Restrictive orUnfair Trade Practices by: a) an individual consumer, b) a registered association ofconsumers, orc) a trade association. The Commission can be moved by an application from theDirector General of Investigation and Registration (DG) or by a reference by the Centralor State Governments. The law provides for self-initiated action on the part of theCommission, if it receives information from any source or on its own knowledge. The

procedure followed by the Commission is that on receipt of a complaint, the matter is, inmany cases referred to the DG for investigation and report. More often than not, thecomplainee is called upon to give his/her comments on the complaints received.Experience shows that in a large number of cases, the mere letter of investigation orletter of enquiry issued by the DG or the Commission results in the complainee

providing the needed relief to the complainant. This has been noticed in cases relating torefunds in respect of bookings of scooters, repair or replacement of refrigerators, TVsets, replacement of defective parts during the warranty period and the like. Similarly,there have been cases of successful interventions relating to bookings of flats and plots

and disputes relating to property.

The law provides for a temporary injunction against the continuance of allegedMonopolistic, Restrictive or Unfair Trade Practices pending enquiry by theCommission. A salutary provision in the MRTP Act is the power of the Commission toaward compensation for loss or damage suffered by a consumer, trader, class of tradersor Government as a result of any Monopolistic/ Restrictive/Unfair Trade Practiceindulged in by any undertaking or person. It is logical and equitable to provide that any

person who is affected by any prohibited practice should have a remedy to recoverdamages and compensation from the guilty party.

9


10/30

Concentration of economic power may result from merger, amalgamation ortake-over. The MRTP Act does not prohibit mergers, amalgamations or take-overs butseeks to ensure that the arrangements serve public interest. Before the 1991amendments, the MRTP Act frowned upon expansion of giant undertakings so as not to

permit them to acquire power to put a stranglehold both on the market as well as on

consumers and further industrial expansion of the country. After the 1991 amendments,the MRTP Act has been restructured and pre-entry restrictions with regard to priorapproval of the Government for amalgamation, merger or take-over have been removed.

REFORMS OF 1991 AND METAMORPHOSIS

In this new millennium born about three years ago, the present decade bids fair to be oneof significant changes. The changes are nothing but a continuum from the last decade ortwo, when changes in the political and economic fields had taken place on atempestuous note. Political metamorphoses, unthinkable till a few years ago, have taken

place alongside economic reforms at a breath-taking pace. For nearly half a century till

the early 1990s, there was a political and economic divide in the world into twopowerful blocks. Over the last ten years after the early 1990s, the world is turningsomewhat unipolar, with central planning yielding to transition to market economy.

All over the world, one of the dominant economic themes in the last decade and a halfhas been the process of globalisation and a progressive international economicintegration of the world economy. The movement is towards the widening ofinternational flows of trade, finance and information in a single integrated globalmarket. Globalisation has the fundamental attributes of relying significantly on marketforces, ensuring competition and keeping market functioning efficiently. Measuresadopted by many countries are essentially designed to open competition in strategicsectors such as telecommunications, air lines, electricity generation and distribution etc.Such measures are a part of a tripod architecture with the three vertices, one maychristen as Liberalisation, Privatisation, and Globalisation (LPG). A veneer runningcommon to the LPG measures is the element of competition. The LPG syndrome seeksto make competition a driving force in the economic and commercial activities of theworld. As observed by Professor Wolfgang Kartte, the Chairman of the German FederalCartel Office, Competition is the engine of market economy (quoted in Brusick,1992). The thinking of policy makers in many countries, particularly the developingones and the hitherto centrally planned economies, is towards factoring competition intothe economic and market policies. Some of the countries have embarked on structural

adjustment programmes involving competition driven reforms and competition orientedpolicies.

India is undergoing the process of transition into a market economy through measuresset by the broad frame work of LPG. While planned economic development had beenthe strategy adopted by India, since 1950s, it is in the last more than a decade since1991, that the strategy has undergone significant metamorphoses. The economicreforms since 1991 and the evolution of the new strategy have been well documented(Bhagwati and Desai, 1970, Bhagwati and Srinivasan, 1975 and Ahluwalia, 1991).

10


11/30

In the pre-1991 reforms period, Indias planned strategy and economic developmentstressed the broad policy objectives of (i) the development of an industrial base with aview to achieving self-reliance and (ii) the promotion of social justice. The specific

policy measures towards these objectives were across-the-board substitution of Indiangoods and services for imports, controlling the pattern of investment and controlling the

utilisation of foreign exchange. The thrust of the policy instruments were the industriallicensing that affected the private sector and creating of a large public sector. The entireexercise was, as described earlier, the Command-and-Control economy.

The Command-and-Control triggered policies meant that Government interventionpervaded almost all areas of economic activity in the country. For instance, there wasno contestable market. This meant that there was neither an easy entry nor an easy exitfor enterprises. Government determined the plant sizes, location of the plants, prices ina number of important sectors, and allocation of scarce financial resources. Theirfurther interventions were characterised by high tariff walls, restrictions on foreigninvestments and quantitative restrictions. It may thus be seen that free competition in

the market was under severe fetters, mainly because of Governmental policies andstrategies, specifically, (1) industrial policy, (2) trade and commercial policy, (3) foreigninvestment policy, and (4) financial sector policy.

In this paper, the reforms since 1991 are not listed for want of space and as they may notbe directly relevant to the title of this paper. Suffice it to say that the industrial policy,trade and commercial policy, foreign and investment policy and financial sector policywere all de regulated and liberalised to embrace the LPG process. For instance,licensing has been abolished in all but six industries. Major industries including ironand steel, heavy electrical equipment, aircraft, air transport, shipbuilding,telecommunication equipment and electric power are now open for private sectorinvestments. The monopoly of the public sector industries was abolished in 1991except for those, where security and strategic concerns still dominated. The system of

price preference for public sector has been discontinued. Reservation of certain goodsfor production in the small scale sector is gradually being phased out. Tariffs are beingreduced in a phased manner. As a result of liberalisation of regulatory controls,rationalisation and mergers, there is more effective competition in the banking sector.

The MRTP Act conceived and legislated more than 30 years ago, was a consequence ofCommand-and-Control policy approach of the Government. The so call MRTP firmswith assets more than Rs. 100 crores (about US $ 22 million) were prohibited from

entering and expanding in any sector except those listed in Appendix I of the Industrial(Development and Regulation) Act, 1951. Even, in respect of such listed sectors, theMRTP firms were required to obtain MRTP clearances in addition to the usual industriallicenses. In other words, the MRTP firms, generally considered big in size, wereallowed to grow only under Government supervision. Size, therefore, was a pejorativefactor in the thinking of the Government, the premise being big becoming bigger isugly.

It is after 1991 reforms that the said premise big becoming bigger is ugly yielded to ametamorphosed approach, namely, big becoming bigger may not be handsome butcertainly is not ugly. In other words, size is not a pejorative factor.

11


12/30

EXPERIENCE IN THE LAST THREE DECADES

During the administration of the MRTP Act over three decades since its inception in1969, many difficulties were encountered, particularly in regard to interpretations of

expressions and provisions therein. There has been a large number of binding rulings ofthe Supreme Court of India and also Bench decisions of the MRTP Commission. Thesedecisions have interpreted the various provisions of the MRTP Act from time to timeand have constituted precedents for the future. Thus, where the wording of the existinglaw has been considered inadequate by judicial pronouncements, it became necessary toredraft the law to inhere the spirit of the law and the intention of the lawmakers.

A perusal of the MRTP Act will show that there is neither definition nor even a mentionof certain offending trade practices which are restrictive in character. Some illustrationsof these are:

Abuse of Dominance

Cartels, Collusion and Price Fixing

Bid Rigging

Boycotts and Refusal to Deal

Predatory pricing

Often an argument has been advanced that one particular general provision [Section2(o)] of the MRTP Act may cover all anti-competition practices, as it defines an RTP asa trade practice which prevents, distorts or restricts competition and that therefore thereis no need for a new law. While complaints relating to anti-competition practices could

be tried under the generic definition of restrictive trade practice (which prevents, distortsor restricts competition), the absence of specification of identifiable anti-competition

practices gave room to different interpretations by different Courts of Law, with theresult that the spirit of the law often escaped being captured and enforced. While ageneric definition might be necessary and might form the substantive foundation of thelaw, it was considered necessary to identify specific anti-competition practices anddefine them so that the scope for a valve or opening on technical grounds for theoffending parties to escape indictment would not obtain. Hence, the need for a new and

better law was recognised, which gave birth to the Competition Act, 2002.

Furthermore, some of the anti-competition practices like cartels, predatory pricing, bid

rigging etc. are not specifically mentioned in the MRTP Act but the MRTPCommission, over the years, had attempted to fit such offences under one or more of itssections by way of interpretation of the language used therein.

Another dimension that marked the thinking of the Government particularly after the1991 economic reforms was the dynamic context of International trade and market aswell as the domestic trade and market. When the MRTP Act was drafted in 1969, theeconomic and trade milieu prevalent at that time constituted the premise for its various

provisions. There has been subsequently a sea change in the milieu with considerablemovement towards liberalisation, privatisation and globalisation. The law needed toyield to the changed and changing scenario on the economic and trade front. This was

12


13/30

one important reason why a new competition law had to be framed. Many countries likethe U.K., Canada, Australia and the European Community have, in line with thisthinking, enacted new competition laws and repealed their earlier laws governing fair-trading, etc.

The experience in administering the MRTP Act, for about three decades since 1969, thedeficiencies noted in the said Act, the difficulties that arose out of differentinterpretations and judgments of the MRTP Commission and the superior Courts of Lawand the new and changing economic milieu spurred by the LPG paradigm and theeconomic reforms of 1991 (and thereafter) impelled the need for a new competition law.

The need for a new law has its origin in Finance Ministers budget speech in February,1999:

The MRTP Act has become obsolete in certain areas in the light of internationaleconomic developments relating to competition laws. We need to shift our focus from

curbing monopolies to promoting competition. The Government has decided to appointa committee to examine this range of issues and propose a modern competition lawsuitable for our conditions.

HIGH LEVEL COMMITTEEON COMPETITION POLICYAND LAW

In October, 1999, the Government of India appointed a High Level Committee onCompetition Policy and Competition Law1 to advise a modern competition law for thecountry in line with international developments and to suggest a legislative frameworkwhich may entail a new law or appropriate amendments to the MRTP Act. TheCommittee presented its Competition Policy report to the Government in May 2000 [thereport will be referred to hereinafter as High Level Committee (2000)]. The draftcompetition law was drafted and presented to the Government in November 2000. Aftersome refinements, following extensive consultations and discussions with all interested

parties, the Parliament passed in December 2002 the new law, namely, the CompetitionAct, 2002.

RUBRICOFTHE NEW LAW, COMPETITION ACT, 2002 (ACT)

There are three areas of enforcement that provide the focus for most competition laws inthe world today. 2

Agreements among enterprises

Abuse of dominance

Mergers or, more generally, combinations among enterprises

1

2

13


14/30

There are, however, differences in emphasis and interpretations across countries andover time within countries. The above mentioned three areas are not mutually exclusiveand there is considerable overlap between them. A number of actions that constituteabuse of dominance could infringe the law regarding agreements among enterprises. Theactions are similar though the causes might be different. In one case, it may be the joint

action of one or more undertakings that is in question, whereas in another, it may be theaction of one dominant undertaking that is the driving force. The concern with mergersis ultimately a concern with market power and the possible abuse of that market power

by the merged entity. In spite of this, most laws deal with this separately. One reason forthis is that it might be difficult to deal with the situation after the fact. In spite of theinevitable duplication that follows from this classification, it provides a useful taxonomyfor organising the thinking about competition law.

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

Anti - Competition Agreements

Abuse of Dominance

Combinations Regulation

Competition Advocacy

These four compartments are described in the narrative that follows:

ANTI COMPETITION AGREEMENTS

Firms enter into agreements, which may have the potential of restricting competition. Ascan 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 potentialrelationship of purchasing or selling to each other. A particularly pernicioustype of horizontal agreements is the cartel. Vertical agreements are pernicious, ifthey are between firms in a position of dominance. Most competition laws viewvertical agreements generally more leniently than horizontal agreements, as,

prima facie, horizontal agreements are more likely to reduce competition thanagreements between firms in a purchaser seller relationship.

HORIZONTAL AGREEMENTS

Agreements between two or more enterprises that are at the same stage of the productionchain and in the same market constitute the horizontal variety. An obvious example thatcomes to mind is an agreement between enterprises dealing in the same product or

products. But the market for the product(s) is critical to the question, if the agreementtrenches the law. The Act has taken care to define the relevant market. 3 To attract the

3

14


15/30

provision of law, the products must be substitutes. If parties to the agreement are bothproducers or retailers (or wholesalers), they will be deemed to be at the same stage ofthe production chain.

A specific goal of competition policy/law is and needs to be the prevention of economic

agents from distorting the competitive process either through agreements with othercompanies or through unilateral actions designed to exclude actual or potentialcompetitors. It needs to control agreements among competing enterprises (horizontalagreements) on prices or other important aspects of their competitive interaction.Likewise, agreements between firms at different levels of the manufacturing ordistribution processes (vertical agreements, for example between a manufacturer andwholesaler) which are likely to harm competition (albeit less harmful than horizontalagreements) need to be addressed in the competition policy/law. The foremostconstituent of any competition policy/law is obviously the objective to fostercompetition and its obverse is the need to deal effectively against practices and conductthat subvert competition. The Act reckons these propositions.

In general the rule of reason test is required for establishing that an agreement isillegal. However, for certain kinds of agreements, the presumption is generally that theycannot serve any useful or procompetitive purpose. Because of this presumption, thelaw makers do not subject such agreements to the rule of reason test. They place suchagreements in the per se illegal category (please see next section). The Act presumesthat the following four types of agreements between enterprises, involved in the same orsimilar manufacturing or trading of goods or provision of services have an appreciableadverse effect on competition :

Agreements regarding prices. These include all agreements that directly or indirectlyfix the purchase or sale price.

Agreements regarding quantities. These include agreements aimed at limiting orcontrolling production, supply, markets, technical development, investment or

provision of services.

Agreements regarding bids (collusive bidding or bid rigging). These include tenderssubmitted as a result of any joint activity or agreement.

Agreements regarding market sharing. These include agreements for sharing ofmarkets or sources of production or provision of services by way of allocation ofgeographical area of market or type of goods or services or number of customers inthe market or any other similar way.

PER SEILLEGALITY

Such horizontal agreements, which include membership of cartels, are presumed to leadto unreasonable restrictions of competition and are therefore presumed to have anappreciable adverse effect on competition. In other words, they are per se illegal. This

provision ofper se illegality is rooted in the provisions of the US law and has a parallelin most legislations on the subject. The Australian law prohibits price fixingarrangements, boycotts and some forms of exclusive dealing. The new UK competitionlaw, namely, Competition Act, 2000, endorses certain agreements to have anappreciable effect on competition (presumption is however rebuttable). A per se

15


16/30

illegality would mean that there would be very limited scope for discretion andinterpretation on the part of the prosecuting and adjudicating authorities. The underlying

principle in such presumption of illegality is that the agreements in question have anappreciable anti-competitive effect. Barring the aforesaid four types of agreements, allthe others will be subject to the rule of reason" test in the Act.

VERTICAL AGREEMENTS

By and large, as noted earlier, vertical agreements will not be subjected to the rigours ofcompetition law. However, where a vertical agreement has the character of distorting or

preventing competition, it will be placed under the surveillance of the law.

For instance, the following types of agreements, inter alia, will be subjected to the ruleof reason test.

Tie in arrangement;

Exclusive supply agreement Exclusive distribution agreement;

Refusal to deal;

Resale price maintenance.

The Act lists the following factors to be taken into account for adjudicatory purposes todetermine whether an agreement or a practice has an appreciable adverse effect oncompetition, namely,a) creation of barriers to new entrants in the market,

b) driving existing competitors out of the market,

c) foreclosure of competition by hindering entry into the market,d) accrual of benefits to consumers,e) improvements in production or distribution of goods or provision of services, andf) promotion of technical, scientific and economic development by means of

production or distribution of goods or provision of services.

EXCEPTIONS

The provisions relating to anti-competition agreements will not restrict the right of any person to restrain any infringement of intellectual property rights or to impose suchreasonable conditions as may be necessary for the purposes of protecting any of his

rights which have been or may be conferred upon him under the following intellectual property right statutes;

the Copyright Act, 1957;

the Patents Act, 1970;

the Trade and Merchandise Marks Act, 1958 or the Trade Marks Act, 1999;

the Geographical Indications of Goods (Registration and Protection) Act, 1999;

the Designs Act, 2000;

the Semi-conductor Integrated Circuits Layout-Design Act, 2000.The rationale for this exception is that the bundle of rights that are subsumed inintellectual property rights should not be disturbed in the interests of creativity and

16


17/30

intellectual/innovative power of the human mind. No doubt, this bundle of rights essaysan anti-competition character, even bordering on monopoly power. But without

protecting such rights, there will be no incentive for innovation, new technology andenhancement in the quality of products and services. However, it may be noted, that theAct does not permit any unreasonable condition forming a part of protection or

exploitation of intellectual property rights. In other words, licensing arrangementslikely to affect adversely the prices, quantities, quality or varieties of goods and serviceswill fall within the contours of competition law as long as they are not in reasonable

juxtaposition with the bundle of rights that go with intellectual property rights.

Yet another exception to the applicability of the provisions relating to anti-competitionagreements is the right of any person to export goods from India, to the extent to which,an agreement relates exclusively to the production, supply, distribution or control ofgoods or provision of services for such export. In a manner of speaking, export cartelsare outside the purview of competition law. In most jurisdictions, export cartels areexempted from the application of competition law. A justification for this exemption is

that most countries do not desire any shackles on their export effort in the interest ofbalance of trade and/or balance of payments. Holistically, however, exemption of exportcartels is against the concept of free competition.

The Central Government has power under the Act to exempt from the application of theAct, or any provision thereof, a class of enterprises, a practice, an agreement etc.

ABUSE OF DOMINANCE

"Dominant Position has been appropriately defined in the Act in terms of the positionof 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. This definitionmay perhaps appear to be somewhat ambiguous and to be capable of differentinterpretations by different judicial authorities. But then, this ambiguity has a

justification having regard to the fact that even a firm with a low market share of just20% with the remaining 80% diffusedly held by a large number of competitors may bein a position to abuse its dominance, while a firm with say 60% market share with theremaining 40% held by a competitor may not be in a position to abuse its dominance

because of the key rivalry in the market. Specifying a threshold or an arithmetical figurefor defining dominance may either allow real offenders to escape (like in the first

example above) or result in unnecessary litigation (like in the second example above).Hence, in a dynamic changing economic environment, a static arithmetical figure todefine dominance may, perhaps, be an aberration. With this suggested broaddefinition, the Regulatory Authority will have the freedom to fix errant undertakings andencourage competitive market practices, even if there is a large player around. Abuse ofdominance is key for the Act, in so far as dominant enterprises are concerned.

It is important to note that the Act has been designed in such a way that its provisions onthis count only take effect, if dominance is clearly established. As already stated, there isno single objective market share criterion that can be blindly used as a test ofdominance. The Act seeks to ensure that only when dominance is clearly established,

17


18/30

can abuse of dominance be alleged. Any ambiguity on this count could endanger largeefficient firms.

PRODUCT MARKET AND GEOGRAPHICAL MARKET

Before assessing whether an undertaking is dominant, it is important, as in the case ofhorizontal agreements, to determine what the relevant market is. There are twodimensions to this the product market and the geographical market. On the demandside, the relevant product market includes all such substitutes that the consumer wouldswitch to, if the price of the product relevant to the investigation were to increase. Fromthe supply side, this would include all producers who could, with their existing facilities,switch to the production of such substitute goods. The geographical boundaries of therelevant market can be similarly defined. Geographic dimension involves identificationof the geographical area within which competition takes place. Relevant geographicmarkets could be local, national, international or occasionally even global, dependingupon the facts in each case. Some factors relevant to geographic dimension are

consumption and shipment patterns, transportation costs, perishability and existence ofbarriers to the shipment of products between adjoining geographic areas. For example,in view of the high transportation costs in cement, the relevant geographical market may

be the region close to the manufacturing facility.

The Act posits the factors that would have to be considered by the adjudicatingAuthority in determining the Relevant Product Market and the Relevant GeographicMarket, reproduced herein below:

RELEVANT PRODUCT MARKET

physical characteristics or end-use of goods;

price of goods or service;

consumer preferences;

exclusion of in-house production;

existence of specialised producers;

classification of industrial products.

RELEVANT GEOGRAPHIC MARKET

regulatory trade barriers; local specification requirements;

national procurement policies;

adequate distribution facilities;

transport costs;

language;

consumer preferences;

need for secure or regular supplies or rapid after-sales services.

18


19/30

The determination of relevant market by the adjudicating Authority has to be done,having due regard to the relevant product market and the relevant geographic market.

PREDATORY PRICING

One of the most pernicious forms of abuse of dominance is the practice of predatorypricing. Predatory pricing occurs, where a dominant enterprise charges low prices over along enough period of time so as to drive a competitor from the market or deter othersfrom entering the market and then raises prices to recoup its losses. The greater thediversification of the activities of the enterprise in terms of products and markets and thegreater its financial resources, the greater is its ability to engage in predatory behaviour.

Predatory price is defined in the Act to mean the sale of goods or provision ofservices, 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 oreliminate the competitors (the expression regulations means the regulations made bythe Commission under the Act). Predatory pricing, therefore is a situation where a firmwith market power prices below cost so as to drive competitors out of the market and, inthis way, acquire or maintain a position of dominance. But there is a danger ofconfusing pro-competitive pricing with predatory behaviour. In reality, predation is onlyestablished after the fact i.e. once the rival has left the market and the predator hasacquired a monopoly position in the market. However, any law to prevent is meaningful,only if it takes effect before the fact i.e. before the competitor has left the market.

Predatory pricing is a kind of Antitrust violation. The Monopolies and Restrictive Trade

Practices Commission in India in the Modern Food Industries Ltd. (MRTP Commission,1996) case observed that the essence of predatory pricing is pricing below cost with aview to eliminating a rival. Further, the Commission made it clear that the mere offerof a price lower than the cost of production cannot automatically lead to an indictmentof predatory pricing and that evidence of malafide intent to drive competitors out of

business or to eliminate competition is required. The logic underlying the caution ofthe Commission is that price-cutting may be for genuine reasons, for example in thecase of inventory surplus. Price-cutting has therefore to be coupled with the mens rea ofeliminating a competitor or competition to become an offence under competition law(Act).

The Act outlaws predatory pricing as an abuse of dominance.

Distinguishing predatory behaviour from legitimate competition is difficult. Thedistinction between low prices, which result from predatory behaviour and low prices,which result from legitimate competitive behaviour is often very thin and not easilyascertainable.

Indeed, it is sometimes argued that predatory behaviour is a necessary concomitant ofcompetition. To quote Professor Jagdish Bhagwati from his book A stream ofWindows:

19


20/30

The notion that .. companies.. compete in a benign fashion is faintly romantic andfully foolish. What the Cambridge economist Joan Robinson used to call the animalspirits of capitalist entrepreneurs surely are manifest.. The successful always appearmore predatory. With success, one gets ones share of envy and resentment(Bhagwati, Jagdish, 1999).

WHENDOESABUSEOFDOMINANCEATTRACTTHELAW?

To attract the provision of the Act, it needs to be established whether the restraintscreate a barrier to new entry or force existing competitors out of the market. The key

issue is the extent to which these arrangements foreclose the market to manufacturers(inter-brand rivalry) or retailers (intra-brand rivalry) and the extent to which these raiserivals costs and/or dampen existing competition. The costs of such arrangements needto be weighed against the benefits. For example, some of these restraints help toovercome the free-rider problem and allow for the exploitation of scale economies inretailing.

Before proceeding to the next compartment, a listing of factors from the Act constitutingdominance" and constituting "abuse of dominance" has been reproduced herein

below.

Dominance is determined by taking into account one or more of the following factors:

market share of the enterprise;

size and resources of the enterprise;

size and importance of the competitors;

economic power of the enterprise including commercial advantages overcompetitors;

vertical integration of the enterprise, or sale or service network of such enterprise;

dependence of consumers on the enterprise;

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; entry barriers including barriers such as regulatory barriers, financial risk, high

capital cost of entry, marketing entry barriers, technical entry barriers, economies ofscale, high cost of substitutable goods or service for consumers;

countervailing buying power;

market structure and size of market;

social obligations and social costs;

relative advantage, by way of the contribution to the economic development, by theenterprise enjoying a dominant position having or likely to have an appreciableadverse effect on competition;

20


21/30


22/30

THE ACTON COMBINATIONS REGULATION

The Act makes it voluntary for the parties to notify their proposed agreement orcombinations to the Mergers Commission, if the aggregate assets of the combining

parties have a value in excess of Rs. 1000 crores (about US $ 220 million) or turnover inexcess of Rs. 3000 crores (about US $ 660 million). The combination as defined by theAct includes mergers, amalgamations, acquisitions of shares, voting rights or assets andacquisitions of control. In the event either of the combining parties is outside India or

both are outside, the threshold limits are $500 million for assets and $1500 million forturnover.

If one of the merging parties belongs to a group, which controls it, the threshold limitsare Rs. 4000 crores (about US $ 880 million) in terms of assets and Rs. 12000 crores(about US $ 2640 million) in terms of turnover. If the group has assets or turnoveroutside India also, the threshold limits are $2 billion for assets and $6 billion for

turnover. For this purpose a group means two or more enterprises which directly orindirectly have:

The ability to exercise 26% or more of the voting rights in the other enterprise; or

The ability to appoint more than half the members of the Board of Directors in theother enterprise; or

The ability to control the affairs of the other enterprise.

Control (which expression occurs in the third bullet defining group above), has alsobeen defined in the Act. Control includes controlling the affairs or management by

(i) one or more enterprises, either jointly or singly, over another enterprise or group;(ii) one or more groups, either jointly or singly, over another group or enterprise.

The threshold limits of assets and of turnover would be revised every two years on thebasis of the Wholesale Price Index or fluctuations in exchange rate of rupee or foreigncurrencies.

The Act has listed the following factors to be taken into account for the purpose ofdetermining whether the combination would have the effect of or be likely to have anappreciable adverse effect on competition.

The actual and potential level of competition through imports in the market;

The extent of barriers to entry to the market;

The level of combination in the market;

The degree of countervailing power in the market;

The likelihood that the combination would result in the parties to the combination

being able to significantly and sustainably increase prices or profit margins;

22


23/30

The extent of effective competition likely to sustain in a market;

The extent to which substitutes are available or are likely to be available in themarket;

The market share, in the relevant market, of the persons or enterprise in acombination, individually and as a combination;

The likelihood that the combination would result in the removal of a vigorous andeffective competitor or competitors in the market;

The nature and extent of vertical integration in the market;

The possibility of a failing business;

The nature and extent of innovation;

Relative advantage, by way of the contribution to the economic development, by anycombination having or likely to have appreciable adverse effect on competition;

Whether the benefits of the combination outweigh the adverse impact of thecombination, if any.

Before the Act was passed by the Parliament, the draft law was placed on the websiteand a number of suggestions were received particularly, on the provisions relating to

combinations regulation. Many economists, experts and officials in the Governmentwere of the view that at the present level of India's economic development,combinations control should not lead to the shying away of foreign direct investmentand participation by major international companies in economic activities through theroute of mergers and acquisitions. They suggested that combination approvals (abovethe specified threshold limits) may not be made mandatory. Notification ofcombinations may on the other hand be made voluntary, albeit with the risk of thediscovery of anti-competitive mergers at a later date with the concomitant cost ofdemergers etc. Another suggestion was to increase the threshold limit by doubling thelimits in the draft law. All these suggestions were given due consideration by theGovernment and the draft law refined before it was placed before the Parliament. Thetrigger cause in the aforesaid suggestions was the felt need for companies in India togrow in size in order to become globally competitive.

The Act has made the pre-notification of combinations voluntary for the partiesconcerned. However, if the parties to the combination choose not to notify the CCI, as itis not mandatory to notify, they run the risk of a post-combination action by the CCI, ifit is discovered subsequently, that the combination has an appreciable adverse effect oncompetition. There is a rider that the CCI shall not initiate an inquiry into a combinationafter the expiry of one year from the date on which the combination has taken effect.

23


24/30

The Regulatory Authority, namely, the Mergers Bench of the Competition Commissionof India is mandated by the Act to adjudicate on mergers by weighing potentialefficiency losses against potential gains.

In order that the Competition Commission of India (Mergers Bench) should not delay its

adjudication on whether a merger may pass through or may be stopped because of itsanti-competitive nature, the Act admonishes the Regulatory Authority to hand in itsadjudicatory decision within 90 working days, lest the merger will be deemed to have

been approved. The Act also provides for limiting the Regulatory Authority's power toask for information from the merging parties within a time frame of 15 working dayswith a corresponding obligation on the merging parties to furnish the information withina further 15 days. Thus by law, the sequencing of the adjudicatory exercise has been setwithin specific time frames, so that possible delays are avoided. Furthermore, mergershave to be approved by the State High Courts under the Companies Act, 1956. Suchapprovals take about 6 months to one year or even more and the 90 working days timelimit for the Mergers Bench will be subsumed in that period.

COMPETITION ADVOCACY

In line with the High Level Committee's recommendation, the Act extends the mandateof the Competition Commission of India beyond merely enforcing the law (High LevelCommittee, 2000). Competition advocacy creates a culture of competition. There aremany possible valuable roles for competition advocacy, depending on a country's legaland economic circumstances. A recent OECD Report noted as follows:

"In virtually every member country where significant reform efforts have beenundertaken, the competition agencies have been active participants in the reform

process. This advocacy can include persuasion offered behind the scenes, as well aspublicity outside of formal proceedings. Some competition agencies have the power, atleast in theory, to bring formal challenges against anti-competitive actions by otheragencies or official or quasi-official bodies. More indirect, but still visible, is formal

participation in another agency's public hearings and deliberations. What is appropriatedepends on the particular institutional setting" (OECD, 1997).

The Regulatory Authority under the Act, namely, Competition Commission of India(CCI), in terms of the advocacy provisions in the Act, is enabled to participate in theformulation 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 CentralGovernment can make a reference to the CCI for its opinion on the possible effect of apolicy under formulation or of an existing law related to competition. The Commissionis mandated to proffer its opinion to the Central Government within 60 days of receivingthe reference. The Commission will therefore be assuming the role of competitionadvocate, acting pro-actively to bring about Government policies that lower barriers toentry, that promote deregulation and trade liberalisation and that promote competition inthe market place. The Act seeks to bring about a direct relationship between competitionadvocacy and enforcement of competition law. One of the main objectives ofcompetition advocacy is to foster conditions that lead to a more competitive marketstructure and business behaviour without the direct penalty loaded intervention of the

24


25/30

CCI. Under the scheme of the Act, the CCIs opinion will constitute an important inputfor the Government to finalise its law or policy, in so far as it impacts on competition.

In order to promote competition advocacy and create awareness about competitionissues and also to accord training to all concerned (including the Chairperson and

Members of the CCI and its officials), the Act enjoins the establishment of a fundchristened the Competition Fund. The Fund will be credited with the fees received forfiling complaints and applications under the law, costs levied on the parties, grants anddonations from the Government, and the interest accrued thereon.

COMPETITION COMMISSIONOF INDIA (CCI)

Administration and enforcement of the competition law requires an administrative setup. This administrative set up should be more proactive than reactive for the

administration of the competition policy. This is not a mere law enforcement agency.This administrative set up should take a proactive stand to be specified and adopted to

promote competition by not only proceeding against those who violate the provisions ofthe competition law, but also by proceeding against institutional arrangements and

public policies that interfere with the fair and free functioning of the markets. It is in thiscontext that the CCI in the Act has been entrusted with the following two basicfunctions:

a) Administration and enforcement of competition law and competition policy to fostereconomic efficiency and consumer welfare.

b) Involvement proactively in Governmental policy formulation to ensure that marketsremain fair, free, open, flexible and adaptable.

INVESTIGATION, PROSECUTION, ADJUDICATION, MERGERS COMMISSION AND COMPETITION

COMMISSION

INVESTIGATIONAND PROSECUTION

Adjudicative wing is distinct and separate from the investigative wing in the Act. At theapex level of the investigative wing, there is an official who has been designated as

Director General (DG). The Director General will not have suo motu powers ofinvestigation. He will only look into the complaints received from the CCI and submithis findings to it. Investigators will be solely responsible for making enquiries, forexamining documents, for making investigations into complaints and for effectinginterface with other investigative agencies of the Government including Ministries andDepartments. The DG has been vested under the Act with powers, which are conferredon the CCI, namely, summoning of witnesses, examining them on oath, requiring thediscovery and production of documents, receiving evidence on affidavits, issuingcommissions for the examination of witnesses etc.

25


26/30

The Act mandates that the investigation staff would need to be chosen from amongthose, who have experience in investigation and who are known for their integrity andoutstanding ability. They should have knowledge of accountancy, management,

business, public administration, international trade, law or economics. Hitherto, in termsof the dispensation under the MRTP Act, they were drawn routinely from those working

in the Department of Company Affairs. The Act thus induces professionalism in theinvestigative wing, a step in the right direction. .

Depending on the load, the Government would create Deputy Directors General in allthe cities where Benches of CCI are situated. They will investigate the cases referred tothem from the Additional (regional) Benches and submit their findings to them directwithout necessarily routing it through Director General at Headquarters. The Actenvisages one Principal Bench and Additional Benches, besides Merger Bench (es). Thescheme of placement of the investigating staff and the procedure and drill forsubmission of their reports to the CCI and its Benches will be laid down, it is expected,

by the CCI and the Government, under Statutory Rules, Statutory Regulations or

otherwise.

It is desirable to prepare guidance manuals spelling out the nature, scope and manner ofinvestigation. By and large, the investigation staff should follow these manuals and anydeparture therefrom must have the prior approval of the Director General. This is toensure that there are no fishing and rowing enquiries designed to threaten and harasscorporates.

ADJUDICATION

Central to effective implementation and enforcement of competition policy andcompetition law is an appropriate competent and effective adjudicative body, in theinstant case, the Competition Commission of India. CCI will be the adjudicating bodyunder the Act with autonomy and administrative powers.

CCI will be a multi-member body with its Chairperson and Members chosen for theirexpertise, knowledge and experience in Economics, Law, International Trade, Business,Commerce, Industry, Finance, Accountancy, Management, Public Affairs orAdministration. The Act stipulates that the Chairperson and Members shall be selectedfrom those, who have been, or are qualified to be Judges of the High Courts or fromthose who have special knowledge of any of the disciplines listed above. They should

not only have special knowledge in one or more of the aforesaid areas, but also haveexperience of not less than 15 years therein. Besides, they need to be persons of ability,integrity and standing.

Each Bench will have a judicial member, as it will have the power of imposingsentences of imprisonment, in addition to levying fines.

MERGERS BENCH

For the cases of mergers, amalgamations etc. which need to be examined on thetouchstone of competition, the Act proposes to have a separate Mergers Bench, which

26


27/30

will be a part of the Competition Commission of India. This is to ensure that there is noavoidable delay in dealing with such scrutiny, as delays can prevent bodies corporatefrom being competitive globally. An important rider in the merger provisions, as notedearlier, is that if the Mergers Bench does not finally decide against a merger within astipulated period of ninety working days, it would be deemed that approval has been

accorded.COMPETITION COMMISSIONOF INDIAAND SELECTIONOF CHAIRPERSONAND MEMBERS

In order to ensure competent and effective implementation of competition policy andcompetition law, it is important and imperative to select suitable persons, suitabilityhaving been described in the earlier paragraphs. It cannot be over-emphasised thatGovernment ought to ensure that the CCI is free of political control. While, it is

practically difficult to eliminate political favouritism, it can be minimised to a greatextent by resorting to what may be described as a Collegium Selection Process. TheAct, as passed by the Parliament, has left the selection procedure to the Government,

which will therefore frame Rules in this regard. It is believed that the Government hasopted for a search committee procedure for the selection of Chairperson and Members.

STATUSOFTHE CHAIRPERSON & MEMBERSOF CCI

The status of the Chairperson and Members of the CCI has been left to the Governmentfor specification by Statutory Rules. It is understood that the Government has prescribedthe status of the Chairperson to be equal to that of a Judge of the High Court and that ofthe Members to be equal to that of a Secretary to the Central Government. Futhermore,according to the Act, the age cap for the Chairperson is 67 years and that for theMembers is 65 years. The Act has created a bar for the Chairperson and Members for a

period of one year from the date on which they cease to hold office, to accept anyemployment in, or connected with the management or administration of any enterprisewhich has been a party to a proceeding before the Commission under the Act.

EXEMPTIONS

The Act provides for the Government to bring into force its different provisions ondifferent dates by a notification. Furthermore, it empowers the Central Government bynotification to exempt from the application of the law or any part thereof for such

period, as it deems fit,

(a) any class of enterprises if such exemption necessary in the interest of security of theState or public interest;(b) 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 countryor countries ;

(c) any enterprise which performs a sovereign function on behalf of the CentralGovernment or a State Government.

The aforesaid provisions in the Act relating to exemptions should enable theGovernment to take care of the country's goals, objectives and needs. The Act provides

27


28/30

flexibility to the Government to use this provision appropriate to the needs of thecountry.

APPEAL AND REVIEW PROVISIONS

Appeals against decisions and orders of the CCI lie to the Supreme Court within thelimitation period of 60 days. Appeals can be on one or more of the grounds specified inSec. 100 of the Code of Civil Procedure. Thus, the status given to the CCI is very highwith only the Supreme Court having the power to overturn its orders.

The CCI has power under the Act to review its own order on an application made by theparty aggrieved by its order.

EXTRATERRITORIAL REACH

The Act has extra-territorial reach. Its arm extends beyond the geographical

contours of India to deal with practices and actions outside India which have anappreciable adverse affect on competition in the relevant market in India. TheCompetition Commission of India has the power to enquire into an agreement, abuse ofdominant position or combination, if it has or is likely to have an appreciable adverseaffect on competition in the relevant market in India, notwithstanding that,

an agreement has been entered into outside India;

any party to such agreement is outside India;

any enterprise abusing the dominant position is outsideIndia;

a combination has taken place outside India;

any party to combination is outside India; or

any other matter or practice or action arising out of suchagreement or dominant position or combination is outsideIndia.

The above provisions are based on what is known as the effects doctrine. Thisdoctrine implies that even if an action or practice is outside the shores of India but hasan impact or effect on competition in the relevant market in India, it can be broughtwithin the ambit of the Act, provided the effect is appreciably adverse on competition.

NEW WINE IN A NEW BOTTLE

After the Act was placed on the web-site and came into the public domain, aquestion often asked is whether it is not still the old law in substance although not inform. A clear answer to this question is in the title of this section. The Act is a new winein a new bottle. The differences between the old law (namely the MRTP Act, 1969) andthe new law (the Competition Act, 2002) may perhaps be best captured in the form of atable displayed below:

28


29/30

MRTP ACT, 1969 COMPETITION ACT, 2002

1 Based on the pre-reforms scenario Based on the post-reforms scenario2 Based on size as a factor Based on structure as a factor

3 Competition offences implicit or not defined Competition offences explicit and defined4 Complex in arrangement and language Simple in arrangement and language and

easily comprehensible5 14 per se offences negating the principles of

natural justice4 per se offences and all the rest subjected torule of reason.

6 Frowns upon dominance Frowns upon abuse of dominance7 Registration of agreements compulsory No requirement of registration of agreements8 No combinations regulation Combinations regulated beyond a high

threshold limit.9 Competition Commission appointed by the

GovernmentCompetition Commission selected by aCollegium (search committee)

10 Very little administrative and financialautonomy for the Competition Commission

Relatively more autonomy for theCompetition Commission

11 No competition advocacy role for theCompetition Commission

Competition Commission has competitionadvocacy role

12 No penalties for offences Penalties for offences13 Reactive and rigid Proactive and flexible14 Unfair trade practices covered Unfair trade practices omitted (consumer fora

will deal with them)

The Act is therefore a new wine in a new bottle. Wine gets better as it ages. The extantMRTP Act 1969 has aged for more than three decades and has given birth to the newlaw (the Act) in line with the changed and changing economic scenario in India and restof the world and in line with the current economic thinking comprising liberalisation,

privatisation and globalisation.

PHASE-INOFTHE VARIOUS SUBSTANTIVE PORTIONSOFTHE ACT

The Act covers all of the 29 States (and 6 Union Territories) of India, except forthe State of Jammu and Kashmir. Thus far (as of February 23, 2004), the CentralGovernment has made effective only the competition advocacy functions of the CCI.The Central Government has filled certain staff positions. The substantive provisions of

the Act dealing with Anti-Competitive Agreements, Abuse of Dominance, andCombinations (Merger) Regulation have notbeen made operative. In the meantime, theMonopolies and Restrictive Trade Practices Act (and MRTP Commission) continues to

be applicable.

EFFECTIVE ENFORCEMENT

The gains sought through competition law can only be realised with effectiveenforcement. Weak enforcement of competition law is perhaps worse than the absenceof competition law. Weak enforcement often reflects a number of factors such asinadequate funding of the enforcement authority. The Government should provide the

29


30/30

required infrastructure and funds to make the Competition Commission an effectiveTribunal to prevent, if not eliminate anti-competition practices and also to play its roleof competition advocacy.

Legal Regulation Final

Documents

Transcript of Legal Regulation Final