Competition Law – Weapon Abandoning Business Tyranny

INTRODUCTION:

“In business, the Competition will bite you if you keep running, and even if you stand still, they will swallow you”

Competition is a process of economic rivalry between market players to be a magnet for customers. Competition increases economic efficiency, and enhances consumer welfare. However, the market economy is also prone to failures where unscrupulous players can undermine the benefits of competition through collusive behaviour or abuse of dominance.

“The general fact is that the most effective way of utilizing human energy is through an organized rivalry, which by specialization and social control is, at the same time, organized Competition”

Competitive market ensures efficiency resulting in the best quality at a reasonable price and also ensures adequate supplies to the customers. This has underlined the need to have a competition law to control and penalize anti – competitive behaviour. Thus, as more and more countries have embraced the market economy, they have also introduced competition laws and setup competition authorities.

Businesses having any legal status, size and sector need to be aware of the Competition law not only so that they can meet their obligations under it but also so as to assert their rights and protect their position in the market. It is increasingly accepted that in a sound business climate investors face relatively low entry and exit barriers and are protected against the risk of expropriation and abuse while consumers are protected against malpractices of trade and industry. The enactment of the Competition Act and its enforcement by an autonomous Commission is a key component in this dynamics. Competition Law & Policy result in equity among producers and reduce rent seeking behaviour on their part. This imperative has persuaded countries to either enact their own law, or to modernize their existing competition laws. The number of countries having a competition law has risen from 35 in 1995 to around 100 as on date.

COMPETITION LAW IN INDIA:

Articles 38 and 39 of the Constitution of India triggered competition Law for India. These Articles seek to prevent concentration of economic power and ensure that the material resources of the country are so distributed as to subserve the common good. However, it created entry barriers to new firms. Clearances had to be obtained for expansion and capacity licences were issued under a control system. Even agreements for the import of foreign technology required approval.

After India became a party to the WTO agreement, a perceptible change was noticed in India’s foreign trade policy, which had been earlier highly restrictive. Recognizing the important linkages between trade and economic growth, the Government of India, in the early 90s took step to integrate the Indian economy with the global economy. Thus, finally enhancing its thrust on globalization and opened up its economy removing controls and resorting to liberalization.

Consequently, India enacted its first anti – competitive legislation in 1969, known as the Monopolies and Restrictive Trade Practices Act (hereinafter referred to as “MRTP Act”), and made it an integral part of the economic life of the country.

Prior to the enactment of the Competition Act, in furtherance of the industrial policy amendments were made in the MRTP Act. Still the pre – entry restrictions under the MRTP Act on the investment decision of the corporate sector outlasted its utility and became a hindrance to the speedy implementation of industrial projects. Ten years after this amendment, the Government realised that the whole setup had become an anachronism, and S.V.S. Raghvan Committee was setup to suggest ways and means to promote competition. Based on the recommendations of this Committee, Parliament passed the Competition Act, 2002. Acting on the report of the committee, the Government enacted the new Competition Act, 2002 which has replaced the earlier MRTP Act, 1969. The competition law was drafted and presented to the Government in November 2000. After some refinements, following extensive consultations and discussions with all interested parties, the Parliament passed in December 2002 the new law, namely, the Competition Act, 2002.

JOURNEY FROM THE MRTP ACT, 1969 TO THE COMPETITION ACT, 2002

The MRTP Act is still the existing competition law in India, as the Competition Act has not yet been fully implemented. The MRTP Act was designed to ensure that the operation of economic system doesn’t result in the concentration of economic power to the common detriment and to prohibit such monopolistic and restrictive trade practices prejudicial to public interest. A read – through of the MRTP Act also shows that there was neither a definition nor a mention of certain offending trade practices, which are restrictive in character. For example, abuse of dominance, cartels, collusion and price fixing, bid rigging, boycotts and refusal to deal and predatory pricing were not dealt with under the Act.

Thus, the MRTP Act has become obsolete in the light of the economic developments relating more particularly to competition laws and the need was felt to shift the focus from curbing monopolies to promoting competition. To address these lacunae the government drafted a new legislation on the subject, which resulted as the Competition Act, 2002. The successor to the MRTP Act, 1969, is more in line with international practices in securing free and fair competition in the marketplace.

The Indian Competition Act covers the following core enforcement-cum-regulatory issues, namely:

1. Prohibition of Anti-competitive agreements ,

2. Prohibition of Abuse of dominance , and

3. Regulation of Combinations

The fourth dimension of the Competition Act is that of “Competition Advocacy” which is distinct from the three enforcement related areas and is only advisory in nature.

As against the aforesaid backdrop, the Competition Act, 2002 differs in many respects from the MRTP Act, 1969. The Competition Act empowers the Central Government to setup a Commission to be called the Competition Commission of India (hereinafter referred to as “CCI”). The Commission shall be a body corporate and may sue or be sued in that name. The Commission shall exercise its duties and functions from Benches and each Bench of the Commission shall consist of one Judicial Member. This provision is a significant departure from the provisions of the MRTP ACT, 1969.

The key factor in case of Anti-Competitive Agreements and Combinations is “adverse appreciable effect on competition, in market, in India”. The parameters to determine relevant market, relevant product market, relevant geographical market and factors to assess the appreciable adverse effect on competition in markets, in India have been prescribed in the Act itself and are to be determined by the Commission. A condition precedent to taking action in respect of abuse of dominant position is that the alleged delinquent enterprise must have dominance in the relevant market. The factors, which shall be taken into account to determine “dominance” and the situations when such dominance is to be construed as “Abuse” thereof, are also prescribed in the Act.

WIDE COVERAGE OF THE COMPETITION ACT

The provisions of the Act extend to the whole of India except the State of Jammu & Kashmir. The Act is applicable to “goods” which includes goods imported into the country and “services” as defined in the Act. The term “Enterprise”, inter alia, includes private sector undertakings, public sector undertakings, Govt. Departments performing non-sovereign functions for consideration . The term “Consumer” includes one who buys “goods” or avails of “services” for consideration notwithstanding whether such purchase of ‘goods’ or availing of ‘services’ is for one’s own consumption or for resale or commercial purposes. The term ‘Cartel’ has also been defined in the Act and cartel agreements are presumed to have adverse appreciable effect on competition, in market, in India.

Further under the Act ” person” includes an individual; a Hindu undivided family; a company; a firm; an association of persons or a body of individuals, whether incorporated or not, in India or outside India; any corporation established by or under any Central, State or Provincial Act or a Government Company as defined in Section 617 of the Companies Act, 1956; any body corporate incorporated by or under the laws of a country outside India; a co-operative society registered under any law relating to co-operative societies; a local authority; every artificial juridical person, not falling within any of the preceding sub-clauses.

Therefore, reading Section 2(h) along with Section 2(l) of the Act implies that every person, organization, institution, society, scientific society (Ministry of IT, Department of Science and Technology and CSIR) and the like which can legally be conceived shall fall within the ambit of definition of “enterprise” except of course, the exceptions listed out in Section 2(h).

Sections 3, 4, 5 and 6 of the Act are the substantive Sections defining and dealing with ‘anti – competitive agreements’, ‘abuse of dominant position’ and ‘regulation of combinations’. All these Sections talk about “enterprise” and persons or enterprises. This means that anti – competitive practices, abuse of dominance and combinations (Mergers & Acquisitions) having appreciable adverse effect on competition within India which may have been caused by any person or enterprise shall be investigated, inquired, regulated and adjudicated by the Commission.

The ambit of the Act encompasses every enterprise, other than those accepted, within its fold and enables the Commission to probe, investigate, inquire, regulate and adjudicate any activity/matter of any person or enterprise. All PSUs, Societies, Scientific Societies, Municipal Corporations etc., fall within the ambit of the Act. Interestingly, the Act gives very wide and comprehensive definitions of ‘service’ under section 2(u) and ‘statutory authority’ under section 2(w). Reading these two definitions and the definitions of ‘enterprise’ and ‘person’ as aforesaid from the Act give an indication that statutory authorities engaged in regulating production or supply of goods or provision of any services or markets fall within the ambit of the Act and hence comes within the jurisdiction of the Commission.

Sections 60 and 61 of the Act give further teeth to the Commission. Under section 60 of the Act it is provided that ‘the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force’.

Section 61 says that ‘no civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the Commission is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act.’

Section 60 is a ‘Non – obstinate’ clause and the principle laid down by the Supreme Court in this regard is given hereinafter.

“The enacting part of the statute must, where it is clear, be taken to control the non-obstinate clause where both cannot be read harmoniously; for, even apart from such clause a later law abrogates earlier laws clearly inconsistent with it”

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

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

PHASES OF IMPLEMENTATION:

As per the deliberation in the Parliament during the discussion of the Competition Bill, the Act is to be implemented in three phases. In the first year, the CCI will exclusively focus on competition advocacy. In the second year the CCI is expected to commence adjudication of inquiries relating to anti – competitive agreements and abuse of dominant position by an enterprise. In the third year the CCI will commence regulation of certain combinations.

COMPONENTS OF COMPETITION ACT

The Competition Act, 2002 has essentially four compartments:

q Anti – Competition Agreements

q Abuse of Dominance

q Combinations Regulation

q Competition Advocacy

ANTI COMPETITION AGREEMENTS

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 likely to cause an appreciable adverse effect on competition within India.

ABUSE OF DOMINANCE

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 operate independently of competitive forces prevailing in the relevant market; or affect its competitors or consumers or the relevant market, in its favour. Section 4 enjoins no enterprise shall abuse its dominant position. 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. It is worth mentioning here 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.

THE ACT ON COMBINATIONS REGULATION

The Act is also designed to regulate the operation and activities of Combinations, a term, which contemplates acquisition, mergers, joint ventures, takeovers or amalgamations. 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.

COMPETITION ADVOCACY

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). Competition advocacy creates a culture of competition. There are many possible valuable roles for competition advocacy, depending on a country’s legal and economic circumstances.

COMPETITION COMMISSION OF INDIA:

The apex body under the Competition Act which has been vested with the responsibility of eliminating practices having adverse effect on competition, promoting and sustaining competition, protecting the interests of consumers, and ensuring freedom of trade carried on by other participants in India, is known as the Competition Commission of India – the successor to the Monopolies and Restrictive Trade Practices Commission (MRTPC). The first part of the Act of 2002 includes a description of activities prohibited under it. This is crucial to our understanding of the letter and spirit of the Competition Act, as all principles enunciated subsequently flow from these prohibitions. Structurally, this is followed by a description of the CCI. Quite logically, a significant portion of the Competition Act has been devoted to the CCI and the executive powers granted to this statutory body since it is ultimately the decisions taken by the Commission, which would provide both direction to the Act as well as the trends displayed in enforcement of the various provisions of the Act.

The Act provides 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. The Commission is to consist of a chairperson, who is to be assisted by a minimum of two, and a maximum of ten, other members. The chairperson and members are to be appointed by the government.

The Commission is to enquire into cases relating to Anti-Competitive Agreement, Abuse of Dominant position by an enterprise and Combinations through a process of “Enquiry”. The jurisdiction, powers and authority of the Commission may be exercised by the Benches thereof and every Bench shall consist of atleast one judicial member. The Commission is separately seized of work relating to formulation of its Regulations, which shall inter alia, govern the procedure relating to conduct of enquiries.

After an Enquiry, in case the Commission finds that any agreement referred to in Section 3 or action of an enterprise in a dominant position is in contravention of Section 3 or 4, it may pass all or any of the following orders, namely:

i) direction to discontinue and not to re-enter such agreement or discontinue abuse of dominance;

ii) impose penalty;

iii) award compensation to an aggrieved person in accordance with Section 34;

iv) direct modification of agreement;

v) direction to abide by such other order including payment of costs;

vi) to recommend to the Central Govt. the “division of enterprise enjoying dominant position”;

vii) pass such other order as it may deem fit.

An enquiry into a combination, existing or proposed, may be initiated upon the knowledge or information in the possession of the Commission or upon notice of the person or entity proposing to enter into a combination or upon a reference made by a statutory authority. While the factors to be taken into account in determining the effects of an existing or proposed combination are similar to the parameters to be applied while examining anti-competitive agreements and abuse of dominant position, criteria such as “actual and potential level of competition through imports in the market”, “extent of effective competition likely to sustain in a market” and “likelihood that the combination would result in the removal of a vigorous and effective competitor or competitors in the market” merit a mention. The Commission is also empowered to grant temporary injunctions during the course of Enquiry. Violation of an order passed by Commission attracts deterrent penalty provisions.

The Commission is assisted by a “Director General” who is under obligation, on the direction of the Commission to carry out and furnish Investigation Reports into the contraventions of the provisions of the Act or any Rules or Regulations made there under.

The Commission has been vested with the powers of a civil court 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. The Act gives the Commission the power to call upon experts in any relevant field to assist in any enquiry or proceeding.

The mandate of the Competition Commission extends beyond the boundaries of India. It has been explicitly provided that acts taking place outside India but having effect on competition in India also fall within the ambit of the Commission. The Commission, with the prior approval of the Central Govt. is also empowered to enter into any Memorandum or Arrangement with any foreign agency of any foreign country for the purposes of the Act.

Presently, the Commission is not undertaking any adjudicatory work but undertaking all other work including competition advocacy and the foundational work essential for making the Commission fully functional at the appropriate stage.

CRITICAL APPRAISAL

However, while seemingly enjoying carte blanche, there appear to be certain glaring lacunae, which would militate against the effectiveness of the provisions of the Competition Act. The Act so far has not become fully functional and the CCI has also not been completely constituted. It is pertinent to note that the actual impact of the Act will be known only after its substantive provisions come into force. The Commission would initiate action upon complaints of anti-competitive agreements, abuse of dominant position and combinations, either suo moto, on the basis of a statutory reference or on the voluntary motion of a person seeking an opinion of the Commission about the merits of a combination sought to be created. The two aspects to be kept in mind are; the lack of a mandatory provision compelling persons or entities (public /private), to approach the Commission and the corresponding logistical limitations of the Commission to be able to take cognizance on its own motion of every malpractice in the economy.

A review of the provisions makes it absolutely clear that the structure of the Commission is to render it a body to which appeals lie, and not an investigative agency, which proactively goes and seeks out industrial monopolistic malpractice. For it to be proactive, the Commission would be required to be supported by a well-equipped research department, the members of which would be entrusted with the responsibility of continuously reviewing economic trends, price inconsistencies and balance sheets of at least that section of corporate India, which has the financial and political whack to indulge their monopolistic aspirations. 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. One can already picture a Mergers Bench, obsolete even before the opportunity of hearing its first case, a sort of reward of non-performance for “deserving” office – bearers. The objects of the Competition Act may well be its tragedy.

This aritcle is a creative property of Source by Sowmya Suman