Genesis and overview of the Competition Act, 2002

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Genesis and overview of the Competition
Act, 2002

• G.R. BHATIA
• ADDITIONAL DG
• Competition Commission of India,
• New Delhi

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MCA reforms rabbit has not been allowed to
become turtle
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MCA Opted for----------- Incrementa
l Updation in Company Law Stock Approach
in Competition Law
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COMPETITION ? promotes
efficiency ? encourages innovation
? punishes the laggards ?
facilitates better governance ?
boosts choice improves quality, reduce
costs ? ensures availability of
goods in abundance of acceptable
quality at affordable price.
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• Companionship between competitiveness and
  corruption.
• Companionship between competitiveness and
  corporate governance.

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UNIQUE FEATURES OF COMPETITION

• We teach and preach competition but invariably do
  not practice
• Competition does not have a human face
• Competition kills competition
• Competition is unstable
• Nature has created monopolies

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• ? Competition is an evasive term
• ? It is not defined in the Act
• It refers to economic rivalry amongst
  economic
• enterprises to control greater market
  power
• Economic enterprises compete to outsmart
  their
• competitors and in the process sometimes
  eliminate rivals.
• Level of Competition does not depend upon
• number of players in an industry but
  degree of
• contestability.

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History of Competition Law

• In 1980, less than 40 countries had Competition
  Law
• Currently over hundred countries have
  Competition Law
• Over 30 countries are in the process of enacting
  Competition Law.

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• An Expert Group set up by the Union Ministry of
  Commerce to study inter action between the trade
  and competition. The said Expert Group in its
  Report submitted in January,1999 suggested
  enactment of Competition Law.

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• The Finance Minister in his Budget Speech on 27th
  
• February, 1999 stated
• The Monopolies and Restrictive Trade
  Practices Act has become obsolete in certain
  areas in the light of international economic
  developments relating to competition laws. We
  need to shift our focus from curbing monopolies
  to promoting competition. The Government has
  decided to appoint a Commission to examine this
  range of issues and propose a modern competition
  law suitable for four conditions.

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• The High Level Committee on Competition Law
  Policy in its Report submitted to Government in
  May, 2000 observed that the M.R.T.P. Act, 1969
  is limited in its sweep and in the present
  competitive milieu it fails to fulfill the need
  of competition law.

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• The Department Related Parliamentary Standing
  Committee on Home Affairs to which Competition
  Bill, 2001 was referred for examination and
  report, the Government submitted that in view of
  the policy shift from curbing monopolies to
  promoting competition, there is a need to repeal
  the M.R.T.P. Act. The rigidly structured
  M.R.T.P.Act also necessitated its repeal in view
  of Governments policy of being facilitator
  rather than regulator

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• The shepherd drives the wolf for which
  sheep thanks the shepherd as his
  liberator while wolf denounces him for same
  act as destroyer of liberty. In plain
  words, the sheep and wolf are
  not agreed upon the definition of Liberty.
• ABRAHAM LINCOLN

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PREAMBLE

• COMPETITION ACT,2002
• Establishment of a Commission
• to prevent practices having appreciable adverse
  effect on competition
• to promote and sustain competition in markets
• to protect the interest of consumers and to
  ensure freedom of trade carried on by other
  participants in markets, in India

• MRTP ACT, 1969
• to provide that the operation of the economic
  system does not result in the concentration of
  economic power to the common detriment,
• Control of monopolies,
• Prohibition of monopolistic and restrictive trade
  practices.

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COMPETITION ACT, 2002

• OBJECTIVES-
• To prevent practices having appreciable adverse
  effect on competition
• to promote and sustain competition in trade and
  industry
• to protect the interest of consumers
• to ensure freedom of trade carried on by the
  participants in market in India
• Establishment of the Competition Commission of
  India.

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Law to be implemented in the phases

• In the first phase, the Competition Commission I
• to undertake competition advocacy
• In the second phase, the Competition Commission
  will commence enquiries relating to
  anti-competitive agreements and abuse
  of dominant position.
• In the third phase, the Commission will commence
  regulation of combinations
• Law also stipulates that different dates may be
  appointed
• for different provisions

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Present Status

• The Central Government has since established
  the Competition Commission of India with head
  office at New Delhi with effect from 14.10.2003
• The Central Government has also appointed a
  Member with effect from 17.10.2003 and he has
  been designated as Member Administration with
  effect from 21.10.2003
• The Commission is presently seized of
  preparatory work such as formulation of
  regulation, setting up of infrastructure,
  advocacy material, capacity building etc.
• The Government is contemplating to make
  certain amendments in the Act.

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• The Commission is presently seized of
  Competition Advocacy which includes
• creating awareness,
• capacity building of functionaries of CCI
  stakeholders. The Commission is assisted by the
  following Advisory Committees-
• i) Advisory committee on Regulations
• ii) Advisory committee on Advocacy
• iii) Advisory committee on Economic
  Information
• iv) Advisory committee on Course
  Curriculum
• v) Advisory committee on Research Evaluation
• vi) Advisory committee on Predatory Pricing

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• Competition Act seeks to modernize
  competition regime
• The Act provides for repeal of the M.R.T.P.Act
  and the dissolution of the M.R.T.P.Commission.
  The notification in this regard is yet to be
  issued.
• The Act provides for transfer of RTP Enq. to
  CCI and UTP Enq. to Forums under CPA

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• Shares before allotment will be outside. Shares
  after allotment stands covered. Debentures have
  also been included.
• The definition of Service has been rationalized
  and amplified. Accounting, communication,
  education, storage, material treatment,
  construction, repairs have been specifically
  covered.

• The term Goods includes shares and shares
  before allotment. IPRs are included in terms of
  orders of Commission.
• Service which are rendered free of charge or
  under a contract of personal service are
  excluded.

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• Cartel is not explicitly defined
• Enterprise

• Cartel has been explicitly defined. It
  includes an association of producers, sellers,
  distributors, traders or service providers who by
  agreement amongst themselves limit, control or
  attempt to control the production, distribution,
  sale or price of, trade in goods or services.
• The scope of term Enterprise has been
  amplified and Govt.Departments performing
  non-sovereign functions has been brought within
  its ambit

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• The term Consumer not defined. Consumer is
  referred to as one defined in Consumer Protection
  Act, 1986

• The term Consumer has been explicitly defined.
  It includes buyer of goods or one who avails of
  services for consideration irrespective whether
  it is for commercial use or personal use.

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• The trade practice concepts Monopolistic,
  Restrictive and Unfair Trade Practices has been
  given good bye.
• The four important Concepts incorporated in the
  Act are
• Prohibition of Anti Competitive Agreements
• Prohibition of Abuse of Dominant Position
• Regulation of Combinations
• 4. Competition Advocacy
• The Act is in line with international trend.

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• Under the M.R.T.P.Act there are 14 deemed
  Restrictive Trade Practices
• Refusal to deal
• Tie up sale
• Exclusive dealing
• Differential discount
• Resale Price Maintenance
• Allocation of market
• Restriction on mfg. process
• Cartel
• Predatory pricing
• Restraint on bids
• Any agreement notified as
• such by Central Govt.
• Agreement to enforce
• restrictive agreement

• In the Competition Act, there are only 9
  anti-competitive agreements out of which 4 are
  deemed only. These are-
• Fixation of price
• Limiting production
• Allocation of market
• Bid rigging or
• Collusive tendering.
• The other 5 Anti-competitive agreements which are
  not deemed but are to be judged by Rule of Reason
  are
• Tie in arrangement
• Exclusive supply agreement
• Exclusive distribution
• agreement
• Refusal to deal
• Resale Price Maintenance

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• Exclusions
• JVs enhancing efficiency are not presumed to
  have appreciable adverse effect.
• Reasonable Restrictions in exercise of IPRs are
  excluded.
• Agreement relating to exports

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• Under the Competition Act, 2002 appreciable
  adverse effect on competition is key factor
  in Anti-Competitive agreements
• These are
• creation of barrier to new entrants.
• driving existing competitors
• foreclosure of competition
• accrual of benefits
• Improvements in production or distribution and
• Promotion of technical, scientific or economic
  development.

• Under the M.R.T.P.Act, the prejudicial to
  public interest is a pre-condition before
  passing adverse order in restrictive Trade
  Practice Enquiry

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• Monopolistic Trade Practices is generally
  referred to as a trade practice of -
• (i) maintaining cost/price at unreasonable
  level,
• (ii) lessening/preventing competition,
• (iii) limiting technical development, increasing
  unreasonably the costs or prices of
  goods/services to be sold/rendered.

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• In case of Monopolistic Trade Practice, the role
  of the M.R.T.P.C is advisory and final power to
  take action vests in the Central Government.
• An undertaking is known as dominant if it
  produces, controls, supplies or distributes 25
  or more of the total production of goods/services
  producers/supplied/rendered etc.

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• To determine dominance, the factors to be
• considered are-
• market share of enterprise,
• size and resources of enterprise,
• size and important of competitors,
• Commercial advantage of competitors,
• Vertical integration,
• Dependence of consumers,
• Dominance because of statute,
• Entry barriers,
• Countervailing buying power, market structure and
  size of market social obligation and
• Contribution to economic development any other
  factor.

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Abuse of Dominance

• Existence of dominance is not bad.
• Exercise of dominance if it falls amongst
  Abuses, is only frowned upon
• Dominance means position of strength which
  enables it to operate independent of competitors,
  consumers or relevant market in its favour

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• Abuse include
• Unfair/discriminatory price or conditions.
• Limiting or restricting production
• Denial of market access
• Conclusion of agreements subject to supplementary
  obligations
• Use of dominance to enter into another market.

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POWERS OF COMPETITION
COMMISSION OF INDIA

• To issue Cease Desist Order
• To modify the trade agreement.
• To grant such interim relief during the
• enquiry
• To award compensation.
• To impose penalty on the guilty.
• To recommend division of enterprise.
• To direct modification of trade agreements.

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• Under the Competition Act
• The CCI has been empowered to impose penalty
  which can be up to 10 of the average
  turnover for the last three preceding
  financial years upon each such enterprise
  who are parties to such agreements or
  abuse.
• In case of cartel, the Commission shall impose a
  penalty equivalent to three times of the amount
  of profits made out or 10 of average turn over
  whichever is more.
• Cartel is generally a secret
  understanding. It can be burst conveniently
  with the assistant of a member of cartel.
• Law empowers Commission to impose lesser
  penalty on a member of cartel can be there if a
  member discloses information before
  investigation/enquiry is taken up and who makes
  first disclosure which is full, true and vital.

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• Under the existing Law, the DG has power to
  initiate investigation suo moto
• The existing Law requires trade agreement
  containing restrictive clauses to be filed
  registered with DG(IR)
• An application can be moved by DG before
  Commission for Enquiry.
• Civil Court powers does not vest in DG

• DG is divested of suo moto power but in the
  proposed law investigation by DG is a condition
  precedent to Enquiry.
• The registration of registrable agreement
  is dispensed but whole agreement containing
  restrictive clause is void.
• Does not exist
• DG has been vested with Civil Court power

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• Under the M.R.T.P. Act a registrable agreement
  is required to be filed with DG.
• The requirement to file trade agreement
  containing anti-competitive clauses has been
  dispensed .
• The Agreement containing anti-competitive
  clause is wholly void.

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It has been explicitly provided that CCI shall
have jurisdiction in respect of Acts taking place
outside India but having an effect on competition
in India. CCI has been empowered to enter into
Memorandum of Understanding with any foreign
agency with the prior approval of the Central
Government.
MRTPC experienced problems relating to extra
territorial reach. No provision for entering
into Memorandum of Under-standing exists under
the MRTP Act.
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Under Section 27 27A of the Act, the Central
Govt. is vested with power to Divide an
Undertaking or severance of inter-connection on
the recommendation of M.R.T.P. Commission.
The Central Govt. on the recommendations of CCI
continues to be vested with power to give
directions of Division of an Enterprise
enjoying dominant position. Marriage and
Divorce amongst undertakings forms part of law.
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• A RTP/UTP Enquiry may be
• instituted
• upon receipt of a
  complaint from any trade association,
  consumer or a registered consumer association
  or
• upon a reference from Central Govt./State
  Govts., or
• upon an application by DG(IR), or
• upon its own knowledge or information.
  

• An Enquiry into Anti-competitive
• agreement and dominant position
• may emanate
• on its own motion or
• on receipt of a complaint from any person,
  consumer or their association or trade
  association or
• Upon a reference made to it by the Central Govt.
  or State Govt. or a Statutory Authority.

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Combinations which exceeds threshold limits shall
be regulated
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The parameters to be kept in view while examining
cases of combinations, have been
prescribed. Central Govt. has been empowered to
notify threshold limits after every two
years Notification of Combination is
optional COMBINATION SHALL BE DEEMED TO HAVE BEEN
APPROVED BY COMMISSION IF NOTHING IS HEARD WITHIN
90 DAYS. Suo moto investigation/enquiry can be
taken up only within a period of one
year Notification by Financial Institutions,
Banks VCF,etc is mandatory.
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• Factors have been prescribed to determine whether
  combinations would have appreciable adverse
  affect on competition.
• Under the MRTP Act, Combinations are not
  regulated since 1991
• There is no requirement to get the undertaking
  registered
• There is no requirement to have prior approval of
  Government
• Under the MRTP Act, the Combinations were
  regulated by the Central Government

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Competition Advocacy an important
compartment of Law

• Govt. while formulating policy may make a
  reference to the CCI for its opinion on possible
  effects on competition.
• Statutory Authority may make a reference on a
  Competition issue for opinion which has to be
  given by CCI within 60 days.
• Training and creating awareness about competition
  and its issues.

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Competition Fund

• The Act provides for establishment of
  Competition Fund to meet expenses of
  CCI
• The fund would have two sources
• (i) grant of money from consolidated
• funds of India and
• (ii) Costs/fees received from parties.
• Competition fund is to ensure financial autonomy
  to CCI

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• The trial of offences of the Commissions Order
  shall be by the Commission itself.
• The DGs power of investigation have been
  substantially enhanced.
• There is a provision to set up additional benches
  in different cities besides Principal Bench and
  Merger Bench
• Wider pool of talent in the composition of
  Commission
• Key factor is Adverse appreciable effect on
  Competition
• Factors have been prescribed to determine
  dominance, relevant market, relevant product
  geographical market

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Reasons which necessitated enactment of new law
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• CCI is off the market regulator.
• Sectoral Regulators are on the market
  regulators.

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• The Competition Act with many innovative
  concepts coupled with power to impose penalties
  is likely to let in harsh glare of sun light to
  disinfect pernicious Anti Competitive Practices.