1 Genesis and o verview of the Competition Act, 2002 G.R. BHATIA ADDITIONAL DG Competition Commission of India, New Delhi.

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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-----------

Incremental Updationin 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 Government’s 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

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.

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

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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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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.

“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.

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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:

1. Prohibition of Anti Competitive Agreements

2. Prohibition of Abuse of Dominant Position

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

Under the Competition Act, 2002 appreciable adverse effect on competition is key factor in Anti-Competitive agreements:

These are:(i) creation of barrier to new

entrants.

(ii) driving existing competitors;

(iii) foreclosure of competition;

(iv) accrual of benefits;

(v) Improvements in production or distribution; and

(vi) Promotion of technical, scientific or economic development.

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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 productionDenial of market accessConclusion of agreements subject to

supplementary obligationsUse 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(I&R)

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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MRTPC experienced problems relating to extra territorial reach.

No provision for entering into Memorandum of Under-standing exists under the MRTP Act.

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.

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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(I&R), 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

Nature of Combination

Group Status

Criterion Value

(a) Acquisition by enterprises

(b) Acquisition by individuals

No Group

Assets

Turnover

In India World over

In India World over

Rs.1,000 cr. US$ 500 millions

Rs.3,000 cr.

US$ 1500 million

(c) Mergers/

amalgamation

Group Assets

Turnover

In India World over

In India

World over

Rs.4,000 cr.

US$ 2 billion

Rs.12,000 cr.

36 billion

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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 Commission’s Order shall be by the Commission itself.

The DG’s 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

The M.R.T.P.Act, 1969 The Competition Act, 2002

1. The M.R.T.P. Commission has to pass ‘cease & desist’ order on being convinced that the restrictive trade practice, which has been subject to enquiry, is “prejudicial to public interest”. The concept “prejudicial to public interest” is unclear, bald, vague and ambiguous

The key factor in the Competition Act is “appreciable adverse effect on competition” for which the factors, which need to consider, have also been prescribed

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4. Under the M.R.T.P.Act, it is mandatory for a party to file a trade agreement within 60 days with the office of the DGI&R if such trade agreement contains restrictive clauses.

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In the regime of liberalization, the requirement to file registrable anti-competitive agreement with the office of the DG has been omitted. This is in line with the international trend

5. Under the M.R.T.P. Act only “restrictive clause” of the trade agreement can be declared void and not the whole agreement

Under the Competition Act, the whole agreement is void in case it is found to have anti-competitive covenant having appreciable adverse effect on competition in the market

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6. Under the M.R.T.P. Act, the powers of the DG have been found to be deficient and limited in carrying out investigation.

Under the Competition Act, the DG is vested with all the powers as are vested in a Civil Court.

7. The M.R.T.P. Act contains provisions both relating to anti-competitive practices and consumer protection.

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The Competition Act focus only on “competition issues” and does not contain provisions, which directly relate to consumer protection.

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The other differences between the M.R.T.P. Act & Competition Act are:

1 Based on the pre-reforms scenario

Based on the post-reforms scenario

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

3. Competition offences implicit or not defined.

Competition offences explicit and defined.

4. Complex in arrangement and language

Simple in arrangement and language and easily comprehensible

5. 14 per se offences negating the principles of natural justice

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

6. Frowns upon dominance Frowns upon abuse of dominance

7. Registration of agreements compulsory

No requirement of registration of agreements

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8. No regulation on combination after 1991.

Combinations regulated beyond a high threshold.

9.. MRTPC appointed by the Government

CCI selected by a Collegium

10. Very little administrative and financial autonomy for the MRTPC

Relatively more autonomy for the CCI

11. No competition advocacy role for the M.R.T.P.C

CCI has competition advocacy role

12. No penalties for offences Penalties for offences

13. Reactive and rigid Proactive and flexible

14. Unfair trade practices covered Unfair trade practices omitted 9consumer for a will deal with them.

15. No time framework Time is the essence

16. No provision for advocacy Advocacy provision exist.

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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.