Competition Act 2002- April 2016,

Competition Act, 2002

Competition • An economic rivalry in which

every seller tries to get what other sellers are seeking at the same time:

sales, profit, and market share by offering the best practicable combination of price, quality, and service. Where the market information flows freely, competition plays a regulatory function in balancing demand and supply

The Timeline• After attaining independence India adopted MRTP

Act 1969 to control trade practices• During Early 90s in the wake of liberalization and

privatization, a realization gathered momentum that the existing Monopolistic and Restrictive Trade Practices Act, 1969 ("MRTP Act") was not equipped adequately enough to tackle the competition aspect of the Indian economy.

• Due to globalization process, Indian enterprises started facing the heat of competition from domestic players as well as from global giants

Contd..

Contd..• In line with the international trend and to cope up with the

changing realities India, consequently, replaced MRTP Act and enacted the Competition Act, 2002 (hereinafter referred to as "the Act")

• Competition Commission of India (hereinafter, referred to as "CCI") replaced the MRTP Commission.

• Pending cases in the MRTP Commission relating to unfair trade practices were transferred to the concerned consumer courts under the Consumer Protection Act, 1986.

• The pending cases relating to monopolistic and restrictive trade practices have to be taken up for adjudication by CCI.

MRTP Act vs. Competition Act

Objects to be Achieved

I. To check anti-competitive practices

II. To prohibit abuse of dominance

III. Regulation of combinations.

IV. To provide for the establishment of CCI

Scheme of the ActThe Scheme of the Act has been split into 9 chapters indicated hereunder:

• Chapter I - preliminary provisions viz. Short title, extent and Definition clauses; • Chapter II -substantive laws i.e. Anti Competitive Agreements, Abuse of Dominance and

Regulation of Combinations; • Chapter III - provisions relating to Establishment of Commission, Composition of

Commission, Selection of Committee for Chairperson and other Members, Term of Office of Chairperson etc.

• Chapter IV - Duties, Powers and Functions of the Commission; • Chapter V - for the Duties of Director General;• Chapter VI - Penalties for Contravention of Orders of Commission, Failure to Comply

with Directions of Commission and Director-General, Making False Statement or Omission to Furnish Material Information etc;

• Chapter VII - Competition Advocacy; • Chapter VIII - provisions relating to Finance, Accounts and Audit, • Chapter VIII A - provisions relating to “Competition Appellate Tribunal” [inserted by the

Competition (Amendment) Act, 2007] and • Chapter IX - Miscellaneous provisions.

ApplicabilityThis act applies to:• All goods and services including goods imported

to India and to whole of India except in Jammu & Kashmir.

• All enterprise whether its private, public or government but does not include- any act of the government related to sovereign functions including the activities of central government dealing in Security, Atomic energy, Currency, Defence and Space.

Main Features of the Act

Competition Act, 2002

Prohibits Anti

Competitive Agreements.

Provides for regulation of Combination

Enjoins Competition

Advocacy

Prohibits Abuse of

Dominant Position

Understanding some Key Concepts

Consumer:

Consumer means any person who buys any goods, hire or avail any services for a consideration payable in any mode of payment other than those person who are buying or availing services in respect of resale, for commercial purpose or for personal use with the permission of first person.

Agreement:

Any understanding or action in concert

• Whether or not formal or in writing• Action intended to be enforceable by legal

proceedings

Cartel:

An association of producers, sellers, distributors, traders and service providerswho by agreement among themselves limit, control, or attempt to control the production, distribution, sale or price of goods or services

Conditions that are conducive to cartelization :

• High concentration - few competitors• High entry and exit barriers• Homogeneity of the products (similar products)• Similar production costs• Excess capacity• High dependence of the consumers on the

product• History of collusion

Bid Rigging:

Any agreement b/w enterprise or persons engaged in identical production or trading of goods or provision of services which has the effect of eliminating or reducing competition for bids or manipulating the bidding process

Relevant Product Market:

A market comprising of all those products or services which are regarded as interchangeable or substitutable by the consumer, by reasons of characteristics of products or services, their prices and intended use.

Tie-in agreement:

The term “tie-in agreement” includes any agreement requiring a purchaser of goods, as a condition of such purchase, to purchase some other goods.

Example: where a gas distributor requires a consumer to buy a gas stove as a pre condition to obtain connection of domestic cooking gas

Exclusive supply agreement:

• It includes any agreement restricting in any manner from acquiring or otherwise dealing in any goods other than those of the seller or any other person.

• Thus, where a manufacturer asks a dealer not to deal in similar products of its competitor directly or indirectly and discontinues the supply on the ground that dealer also deals in product of suppliers’ competitor’s goods is an illustration of exclusive dealing agreement.

Refusal to deal:

It includes any agreement, which restricts, or is likely to restrict, by any method the persons or classes of persons to whom goods are sold or from whom goods are bought.

Example: an agreement which provides that the franchisees will not deal in products or goods of similar nature for a period of three years from the date of determination of agreement within a radius of five kms from showroom amounts to exclusive dealing agreement.

Resale price maintenance:

It includes any agreement to sell goods on condition that the prices to be charged on resale by the purchaser shall be the prices stipulated by the seller unless it is clearly stated that prices lower than those prices may be charged.

ANTI-COMPETITIVE AGREEMENTS

- As per section 3 of the Act, enterprises, persons or associations of enterprises or persons, including cartels, shall not enter into agreements in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which cause or are likely to cause an "appreciable adverse impact" on competition in India. - Such agreements would consequently be considered void.

WHAT may be considered as an ANTI-COMPETITIVE AGREEMENT?

• agreement to limit production and/or supply;• agreement to allocate markets;• agreement to fix price;• bid rigging or collusive bidding;• conditional purchase/sale (tie-in arrangement);• exclusive supply / distribution arrangement;• resale price maintenance; and• refusal to deal.

ABUSE OF DOMINANT POSITION

• Section 4 of the Act enjoins, "no enterprise shall abuse its dominant position".

• In competition act, there is no restriction on Dominant position but there is restriction on Abuse of Dominant Position

Abuse of dominant position includes:

• Imposing unfair conditions or price,• Predatory pricing,• Limiting production/market or technical

development ,• Creating barriers to entry,• Applying dissimilar conditions to similar

transactions,• Denying market access, and• Using dominant position in one market to gain

advantages in another market.

Lets understand with a Recent Case and Ruling Given by CCI….

M/s Mega Cabs Pvt. Ltd. Vs. M/s ANI Technologies Pvt. Ltd.(OLA)

Brief Background:-In a recent order dated February 09, 2016, the CCI has rendered its decision in a case between the above relating to alleged abuse of its dominant position and entering into anti-competitive agreements with its taxi drivers by OLA in the Delhi-NCR region, India

-CCI ruled in OLA's favour Contd..

Contd..- Mega Cabs filed a complaint against OLA Cabs

accusing it of entering into anti-competitive agreements and of abusing its dominant position in Delhi- NCR region, India

- Both are engaged in the business of radio taxi services, in the Delhi-NCR region, India.

Contentions by Mega Cabs

That :

• OLA is dominant in the Delhi-NCR market and is abusing its dominant position in terms of Section 4 of the Competition Act, 2002.

• OLA has also indulged in anti-competitive agreements with the taxi drivers registered on its network which has adversely affected the competition in the market within the meaning of Section 3 of the said Act.

• That OLA has managed to raise huge investments by way of multiple rounds of venture funding to acquire a position of dominance in Delhi-NCR region,

• OLA has engaged itself in abusive tactics like predatory pricing, offering periodical discounts to consumers and incentivising driver with the sole intention to eliminate competition from the market.

• OLA's recent acquisition of its competitor 'Taxi for Sure', has strengthened its market position tremendously enabling it further to indulge in abusive tactics.

Contd..

Contd…

• As per a market report titled"Delhi/NCR Radio Taxi Market Analysis (2015)' prepared by '6Wresearch' , OLA along with Taxi For Sure holds a dominant position in the radio taxi services market in Delhi-NCR on the basis of fleet size (52.9%), monthly revenue (52.3%) and number of trips per day (57.5%).

• For every cab trip, OLA receives 15% of the actual billing and remaining 85% is remitted to service providers as revenue. Further, over and above the 85% share, OLA provides rebates and incentives to its drivers.

• That OLA also suffers a loss of INR 15.80 per trip but engages in below-cost pricing to oust other players from the market.

• That OLA provides many discounts to customers like free rides, cash back schemes, recharge schemes, reduction in minimum fares, special bonuses, special prizes etc. leads to discrimination of pricing.

• That due to actions of OLA, Mega Cabs is losing its revenues and radio taxis on its network as its bookings have reduced by 29% since April 2013, bookings have gone down by 31% during 2013-2015 and the average number of trips per day has also gone down by 31% during the said period.

Reply by the Opposite Party, OLA• That Mega Cabs has wrongly relied on financial statements of OLA for

the year 2012-13 and 2013-14 when OLA was not even present in the Delhi-NCR market,

• 6Wresearch report is unreliable which reflects the poor performance of Mega Cabs and cannot be used as a basis to prove OLA's dominance.

• Mega Cabs operates on own-assets model wherein all taxis in its fleet size are owned by it as opposed to OLA which operates on aggregators' model wherein it does not own taxis, rather taxis are attached to its network by taxi owners. Hence, the connotation of 'active fleet size' cannot be applied to Mega Cabs which has full control over its taxi fleet.

• That Mega Cabs has 650 taxis in its fleet out of which 400 are active and 250 are inactive. Further, daily trips of each radio taxi of OLA are 6 whereas for Mega Cabs it is only 4, thereby showing its inefficiency.

Contd…

Contd..

• That while Mega Cabs is complaining of OLA's losses and linking it to predatory pricing, Mega Cabs is also suffering losses for 6-7 years after entering the market.

• That giving discounts and rebates is very natural in every market and essential in the competition process, especially for new players trying to gain a presence in the market.

• That being an aggregator, OLA needs to ensure that the taxi drivers attached to its network stay motivated, and therefore it needs to provide incentives to drivers.

• That OLA is an efficient and innovative player in radio taxi services market and its strategies aim at meeting the competition and establishing a presence.

CCI's ObservationsThe CCI observed that:• The veracity of the 6Wresearch report relied upon by Mega

Cabs in the case was highly doubtful • The research was commissioned on instructions of a

particular anonymous client • Most of the data used in the report is silent as to specific

source from where the data is taken. • Thus, it remains questionable as to whether radio taxi

operators were interviewed or not and if the data was reliable.

• Thus, conclusions based on incomplete information were not found to be reliable. Hence, OLA's dominance in the relevant market based on the 6Wresearch report could not be proved.

CCI Holding• CCI held that OLA does not hold a dominant position in the

relevant market and there are other players with significant presence in the market. Hence there was no need to go into the examination of OLA's conduct in such relevant market.

• Inability of existing players to match innovative technology by any player or the model created for operating in a particular industry cannot be said to be creating entry barriers in itself.

• Further, option of venture funding, used by OLA to bear costs of giving incentives to drivers and discounts to customers are not exclusively available to OLA alone and can be accessed by any existing player in the market. Thus, Mega Cabs' contentions appear to be misplaced and liable to rejection.

COMBINATIONS

• The Act is designed to regulate the operation and activities of "combinations", a term, which contemplates acquisition, mergers or amalgamations.

• 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.

What are the threshold

Criteria Asset Turnover

Only Within

India

No Groups ` 1,500 Cr ` 4,500 Cr

Groups ` 6,000 Cr ` 18,000 Cr

Within and

outside India

No Groups US $ 750 m (with

at least ` 750 Cr in

India)

US $ 2,250 m

(With at least `

2,250 Cr in India)

Groups USD $ 3,000

(with at least ` 750

Cr in India)

US $ 9,000 m

(With at least `

2,250 Cr in India)

Role of CCI in regulating combinations

• organisation to disclose CCI, the detail of the proposed combination from the date of approval of proposed merger or amalgamation within 30 days

• Competition Commission of India must decide within 210 days, if they fail to reply within stipulated period it is assumed that combination has been approved.

Approvals by CCI(Source Annual Report 2014-15, CCI)

Competition Advocacy

• Creates a culture of competition.• The central Government or state government may in

formulating a policy make a reference to the commission for its opinion in respect of possible effect on such policy on competition

• CCI to reply within 60 Days from the date of making such reference, give its opinion to the respective government as the case may be, on which Central Government or State Government make further action as it deems fit.

• Note: Such opinion shall not be a binding on any government

Benefits of Competition Advocacy

1• Promote Efficiency

2• Encourage Innovation

3• Facilitates better Governance

4• Better Utilization of Resources

5• Wide range of goods at competitive price

6• Increase Scope of Employment

7• Better quality of goods at affordable price

Competition Commission of India

• Created under Section 7 of the Act• A body corporate having perpetual succession

and a common seal.• Head office situated in New Delhi

Composition and Qualifications of Commission

• Chairperson and at least 2 but not more than 6 other members to be appointed by the CG

• Qualification:a. He/she shall be a person of ability, integrity and standing andb. He/she has been or is qualified to be a Judge of a high court or has special knowledge and professional experience of not less than 15 years in International trade, economics, business, commerce, law, finance, accountancy, management etc.

Term of office

• Chairperson: Period of 5 years or upto the age of 67 years

• Members: Period of 5 years or upto the age of 65 years

• Casual Vacancy of Chairperson by death, resignation or otherwise: the senior-most Member shall act as the Chairperson, until new is appointed

• When the Chairperson is unable to discharge his functions: owing to absence, illness or any other cause, the senior-most Member shall discharge the functions of the chairperson until he resumes

Restriction on employments of Chairperson and Members

• The Chairperson or Members shall not, for a period of 2 years, accept any employment of any enterprise which has been a party to any proceeding before the Commission of the Act.

• Restriction shall not be allowed if they are

being appointment by CG

Powers of Commission

Inquire into anti competitive and abuse of dominant position

Determine whether agreements has any adverse effect on competition

Examine whether combination has any adverse effect on competition

Granting interim relief as would be necessary in a particular case

Imposing Fines and Penalties

Awarding Compensation

Order Division of dominant undertaking or demerger

ChairpersonTwo other members

appointed by CG

COMPETITION APPELLATE TRIBUNAL- COMPOSITION & QUALIFICATION

Shall be the Judge of the Supreme Court or the Chief

Justice of a High Court

A Person of integrity and standard having professional experience of

not less than 25 Years in competition matters

Director General

• Appointed by Central Government for investigation, proceedings of enquiries in relation to matters which are referred by the CCI

• Appointment is made on the basis of outstanding ability, knowledge and field experience

Appeal Process in Tribunal

Person AggrievedFile an appeal within 60 days of receipt of

the order

Tribunal may entertain the appeal even

after 60 days if it thinks fit

Commission to close the appeal within 6 months timeframe

Stages of Appeal

Competition Commission of India

Competition Appellate Tribunal

Supreme Court

60 Days

60 Days

Role of Company Secretary• Section35 authorizes a company secretary holding a certificate of

practice under Section 6(1) of the Company Secretaries Act,1980 to appear before Competition Commission of India.

• Company Secretary is responsible for ensuring all legal compliances including compliance of all statutes.

• Clause 49 of the Listing agreement of SEBI includes compliance of Competition Act, 2002.

• It becomes a duty of a company secretary to advise the company to comply with provisions of the Competition Act, 2002.

• Company Secretary is best suited to be appointed as “Compliance Officer” under the Competition Compliance Program (CCP)

Penalty and PunishmentsIf a person fails to comply with the

Directions/ Conditions/ Restrictions

ORFails to pay Penalty

imposed

The person shall be punishable with :imprisonment for a term which may extend to 3 years or

with fine which may extend to rupees 25 crores or with both

Penalty for non-furnishing of information on combination

Penalty may be imposed by the commission which may extend to 1% of the total turnover or the assets, whichever is higher, of such a combination.

CCI’s Power to impose lesser penalty

• If any producer, seller, distributor, trader or service provider included in any cartel, which is alleged to have violated Section 3, has made a full and true disclosure in respect of alleged violations and such a disclosure is vital, the Commission may impose upon him a lesser penalty than as prescribed under the Act or rules or regulations.

Sources:

• http://www.icsi.edu• http://www.mondaq.com• http://www.cci.gov.in/annual-reports• https://en.wikipedia.org/wiki/Competition_Commission_of_India

• Presented By: Pooja Chetri