Modern Competition Law
While the development of competition law stalled in Europe during the late 19th century, in1889 Canada enacted what is considered the first competition statute of modern times. The Act for the Prevention and Suppression of Combinations formed in restraint of Trade was passed one year before the United States enacted the most famous legal statute on competition law, the Sherman Act of 1890. It was named after Senator John Sherman who argued that the Act “does not announce a new principle of law, but applies old and well-recognized principles of common law”.
India responded positively by opening up its economy by removing controls during the Economic liberalization. In inquest of increasing the efficiency of the nation’s economy, the Government of India acknowledged the Liberalization Privatization Globalization era. As a result, the Indian market faces competition from within and outside the country. This led to the need of a strong legislation to dispense justice in commercial matters and the Competition Act, 2002 was passed. The history of competition law in India dates back to the 1960s when the first competition law, namely the Monopolies and Restrictive Trade Practices Act (MRTP) was enacted in 1969. But after the economic reforms in 1991, this legislation was found to be obsolete in many aspects and as a result, new competition law in the form of the Competition Act, 2002 was enacted in 2003. The Competition Commission of India is the quasi-judicial body established for enforcing provisions of the Competition Act.
The Competition Act, 2002 was enacted by the Parliament of India and governs Indian competition law. It replaced the archaic Monopoly and Restrictive Trade Practices Act, 1969. Under this legislation, the Competition Commission of India was established to prevent activities that have an adverse effect on competition in India[Section 7(1)].
Competition law, or antitrust law, has three main elements:
Prohibiting agreements or practices that restrict free trading and competition between businesses. This includes in particular the repression of free trade caused by cartels.
Banning abusive behavior by a firm dominating a market, or anti-competitive practices that tend to lead to such a dominant position. Practices controlled in this way may include predatory pricing, tying, price, gouging, refusal to deal, and many others.
Supervising the mergers and acquisitions of large corporations, including some joint ventures. Transactions that are considered to threaten the competitive process can be prohibited altogether or approved subject to “remedies” such as an obligation to divest part of the merged business or to offer licenses or access to facilities to enable other businesses to continue competing.
Substance and practice of competition law vary from jurisdiction to jurisdiction. Protecting the interests of consumers and ensuring that entrepreneurs have an opportunity to are often treated as important objectives. Competition law is closely connected with law on deregulation of access to markets, state aids and subsidies, the privatization of state-owned assets, and the establishment of independent sector regulators, among other market-oriented supply-side policies. In recent decades, competition law has been viewed as a way to provide better public services. Robert porkargued that competition laws can produce adverse effects when they reduce competition by protecting inefficient competitors and when costs of legal intervention are greater than benefits for the consumers.
OBJECTS TO BE ACHIEVED
- To check anti-competitive practices
- To prohibit abuse of dominance
III. Regulation of combinations.
- To provide for the establishment of CCI, a quasi-judicial body to perform the below-mentioned duties:
- Prevent practices having an adverse impact on competition
- Promote and sustain competition in the market
- Protect consumer interests at large
- Ensure freedom of trade carried on by other participants in the market
- Look into matters connected therewith or incidental thereto.
- ANTI-COMPETITIVE AGREEMENTS
The species of the agreement which would be considered to have an ‘appreciable adverse impact” would be those agreements which:
- Directly or indirectly determine sale or purchase prices;
- Limit or control production, supply, markets, technical development, investment, or provision of services;
- Share the market or source of production or provision of services by the allocation of inter alia geographical area of the market, nature of goods or number of customers or any other similar way
- Directly or indirectly result in bid-rigging or collusive bidding.
Further, the agreements, which are entered into in respect of various intellectual property rights and which recognize the proprietary rights of one party over the other in respect of trademarks, patents, copyrights, geographical indicators, industrial designs, and semiconductors have been withdrawn from the purview of “anti-competitive agreements”. The inherently monopolistic rights created in favor of bona fide holders of various forms of intellectual property have been treated as sacrosanct.
- ABUSE OF DOMINANT POSITION
Section 4 of the Act enjoins, “No enterprise shall abuse its dominant position”. Dominant position is the position of strength enjoyed by an enterprise in the relevant market, which enables it to operate independently of competitive forces prevailing market, or affect its competitors or consumers or the relevant market in its favor. There shall be an abuse of dominant position if an enterprise indulges in the below-mentioned activities:
- Directly or indirectly imposing discriminatory conditions in the purchase or sale of goods or service, or setting prices in the purchase or sale (including predatory pricing) of goods or services;
- Limiting or restricting the production of goods or provision of services or market, therefore; or limiting technical or scientific development relating to goods or services to the prejudice of customers;
- Indulging in practice or practices resulting in the denial of market access
- Making conclusion of contracts subject to acceptance by other parties of supplementary obligations, which has no connection with the subject of such contract;
- Utilization of the dominant position in one relevant market to enter into, or protect another relevant market.
The Act is designed to regulate the operation and activities of “combinations”, a term, which contemplates acquisition, mergers or amalgamations. A combination that exceeds the threshold limits specified in the Act in terms of assets or turnover, which causes or is likely to cause an appreciable adverse impact on competition within the relevant market in India, can be scrutinized by the Commission.
Threshold limits that would invite the scrutiny are specified below:
- Combined assets of the firm more than Rs 3,000 crore.
- The limits are more than Rs 4,000 crore or 12,000 crores.
- Assets of the merged/amalgamated entity more than Rs 1,000 crore or turnover of more than Rs 3,000 crore.
- These limits are more than Rs 4,000 crore or Rs 12,000 crore.
Further, such a combination, which causes or is likely to cause “appreciable adverse impact” on competition, would be treated as void.
A system is provided under the Act wherein at the option of the person or enterprise proposing to enter into a combination may give notice to the Competition Commission of India of such intention providing details of the combination.
The Commission after due deliberation would give its opinion on the proposed combination to approach the Commission for this purpose. However, public financial institutions, foreign institutional investors, banks or venture capital funds that are contemplating share subscription financing or acquisition pursuant to any specific stipulation in a loan agreement or investor agreement are not required to approach the CCI for this purpose.
COMPETITION COMMISSION OF INDIA
CCI, entrusted with eliminating prohibited practices, is a body corporate and independent entity possessing a common seal with the power to enter into contracts and to sue in its name. It is to consist of a chairperson, who is to be assisted by a minimum of two, and a maximum of ten, other members.
Acts taking place outside India
CCI has the power to enquire into unfair agreements or abuse of dominant position or combinations taking place outside India but having an adverse effect on competition in India, provided that any of the below mentioned circumstances exists:
- An agreement has been executed outside India
- Any contracting party resides outside India
- Any enterprise abusing dominant position is outside India
- A combination has been established outside India
- A party to a combination is located abroad.
- Any other matter or practice or action arising out of such agreement or dominant position or combination is outside India.
To deal with cross-border issues, CCI is empowered to enter into any Memorandum of Understanding or arrangement with any foreign agency of any foreign country with the prior approval of the Central Government.
For the execution of duties, the Act contemplates the exercise of the jurisdiction, powers, and authority of CCI by number of Benches. If necessary, a Bench would be constituted by the chairperson of at least two members; it being mandated that at least one member of each Bench would be a “Judicial Member”. The Bench over which the chairperson presides is to be known as the Principal Bench and the other Benches known as Additional Benches. However, the Act further empowers the chairperson to further constitute one or more Benches known as Mergers Benches exclusively to deal with combination and the regulation of combinations.
Extension of the executive powers
The Act contemplates the extension of the executive powers of CCI by the appointment of a Director-General and as many other persons for the purpose of assisting it in conducting inquiries into contraventions of the provisions of the Act as well as conducting cases before the Commission.
CCI is empowered to conduct inquiries into:
- “Certain agreements and dominant position of enterprise”
An inquiry or complaint could be initiated or filed before the Bench of CCI if within the local limits of its jurisdiction the respondent\s actually or voluntarily resides, carries on business or works for personal gain, or where the cause of action wholly or in part arises.
CCI has been vested with the powers of a civil court including those provided under sections 240 and 240A of the Companies Act, 1956 on an “Inspector of Investigation“ while trying a suit, including the power to summon and examine any person on oath, requiring the discovery and production of documents and receiving evidence on affidavits. CCI is also vested with certain powers of affirmative action to act in an expedited manner. Civil courts or any other equivalent authority will not have any jurisdiction to entertain any suit or proceeding or provide injunction with regard to any matter which would ordinarily fall within the ambit of CCI.
PROCEDURE OF INVESTIGATION AND ORDER THEREOF
If a prima facie case exists with respect to anti-competitive agreements and abuse of dominant position, CCI is empowered to direct the Director-General to conduct an investigation in the matter.
In determining the nature of agreements, the following factors are to be taken into account:
- Barriers to new entrants in the market
- Driving existing competitors out of the market
- Foreclosure of competition by hindering entry into the market
- Accrual of benefits of consumers
- Improvements in production or distribution of goods or provision of services
- Promotion of technical, scientific, and economic development.
In determining the nature of the dominant position enjoyed by an enterprise, the following factors are to take into account:
- Market share of the enterprise and market structure and size
- Size and resources of the enterprise
- The economic power of the enterprise including commercial advantages over the competitors
- Size and importance of the competitors
- Dependence of consumers on the enterprise
- The extent of vertical integration and consumer dependence
- Whether the monopoly was gained by reason of statute or otherwise
- Entry barriers including barriers such as regulatory barriers, financial risk, the high capital cost of entry, market entry barriers, technical entry barriers, economies of scale
- “Countervailing buying power” and “social obligations and costs”
- Any other factor which CCI may consider relevant for the inquiry
The Director-General would submit his report with recommendations. If CCI is of the view that there are no merits to the case, the complaint would be dismissed, with costs. However, during the course of inquiry, CCI may grant interim relief by way of temporary injunctions restraining a party from continuing with the ant-competitive agreements or abuse of dominant position.
An order of CCI subsequent to an inquiry could consist of:
- Directing the persons or entities ruled against to desist from abusing a dominant position or discontinuing acting upon anti-competitive agreements
- Imposing penalty to the maximum extent of ten percent of the average turnover for the last preceding three financial years upon each person or entity party to the abuse
- Award compensation
- Modify agreements
- Recommend the division of the dominant enterprise to the Centre, which has the ultimate authority to decide the fate of a dominant enterprise
- Recovery of compensation from any enterprise for any loss or damage shown to have suffered by the other party.
The procedure for the investigation of combinations is somewhat different, as the Act contemplates direct investigation to be conducted by CCI rather than by resorting to the via media of the Directorate General. It may call upon any party to furnish all relevant information with regard to their business operation to come to a conclusion as to the nature of the combination.
While the factors to be taken into account are similar to the parameters to be applied while examining anti-competitive agreements and abuse of dominant position the CCI shall also have due regard to the following factors:
- The actual and potential level of competition through imports in the market
- The extent of effective competition likely to sustain in the market
- The likelihood that the competition would result in the removal of a vigorous and effective competitor or competitors in the market.
- Possibility of a failing business
- Nature and extent of innovation
- Relative advantage, by way of the contribution to the economic development
- Whether the benefits of the combination outweigh the adverse impact of the combination if any
In case of combination, CCI may pass following orders:
- Approval of the combination if no appreciable adverse effect on competition is found
- Disapproval of the combination in case of adverse effect
- It may propose suitable modification as accepted by the parties
- During enquiry grant interim relief by way of temporary injunctions
- Award compensation
In case of failure to comply with the directions of CCI and Director-General or false representation of facts by parties, penalties ranging from Rs. 1lac to Rs. 1 crore may be imposed as the case may be.
Perhaps one of the most crucial components of the Act is competition advocacy. The intention is to help evolve competition law through review of policy, promotion of competition advocacy, creating awareness, and imparting training about competition issues. For this purpose, Government may, in its discretion, make a reference to CCI for its opinion thereon but is not bound by it. The power of the Centre to issue directions to CCI is inherent, and such directions would bind it.