Competition act,2002-Business Law

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Competition Act, 2002 ( an up gradation to the MRTP Act 1969)

Prof. Shrinivas V K

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Introduction & Interpretation

An act to provide, keeping in view of the economic development of the country, 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 trades carried on by other participants in markets, in India, and for matters connected therewith or incidental thereto.

- The Competition Act, 2002, Opening para.

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Competition act , 2002

Some of the objectives of Competition Act are as follows :-

• Establishment of a Commission to prevent adverse effect on competition.

• Promotion and sustenance of competition in the market.

• Protection of consumers’ interests.

• Freedom of trade.

• Predecessor : MRTP Act, 1969.• Followed by : Competition ( Amendment) Act

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Competition Act,2002 v/s MRTP Act,1969

• Competition concepts expressly defined.

• Provisions for regulation of Combination.

• Power to impose penalty.

• Statutory authority can seek CCI’s opinion.

• Competition concepts not defined clearly.

• No provisions for regulation of Combination.

• No power to impose penalty.

•No authority to seek opinion.

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• Based on post reforms scenario.

• Based on structure as factor. •Relatively more autonomy for the Competition Commission.

• Penalties for offences.

• Proactive & Flexible.

•Based on pre-reforms scenario.

• Based on size as a factor. •Very little financial and administrative autonomy.

• No penalties for offences.

• Reactive and Rigid.

Competition Act,2002 v/s MRTP Act,1969

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Activities Prevented Under Competition Act

• Price fixing : If two or more supplier fixes the same price for supplying the goods then it will be restricted practice.• Bid rigging : If two or more supplier exchange sensitive information of bid, then it will also be restricted practice and against competition.• Re-sale price fixation : If the producer sells the goods to the distributors on the condition that he will not sell on any other price which is not fixed by the producer.• Exclusive dealing : This is also restricted practice. If the distributor purchases the goods on a condition that supplier will not supply the goods to any other distributor.All the above activities promote monopoly and will not be entertained by Competition Commission.

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Important DefinitionsUnder Competition Act, 2002

• Acquisition[Sec.2(a)].It means, directly or indirectly, acquiring or agreeing to acquire-

(i) shares, voting rights or assets of any enterprise

(ii) control over management or control over assets of any enterprise.

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Definitions

• Agreement[Sec.2(b)].It includes any arrangement or understanding or action in concert-

(i) Whether or not, such arrangement, understanding or action is formal or in writing; or

(ii) Whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings.

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Definitions• Consumer[Sec.2(f)]. “Consumer” means any person who-(i) Buys any goods for a consideration. The consideration may have been

paid or promised or partly paid and partly promised, or under any system of deferred payment.“Consumer” includes any user of the goods other than the person who buys them for consideration paid or promised to be paid in the above manner. When such use is made with the approval of the owner, it makes no difference whether the purchase of goods is for resale or for any commercial purpose or for personal use;

(ii) Hires or avails of any services for a consideration. (iii) Consumer includes any beneficiary of services.

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Definitions• Enterprise[2(h)].It means a person or a department of the

Government, who or which is, or has been or is proposed to be, engaged in any activity, relating to the-

(i)production,storage,supply,distribution, acquisition, or control of articles or goods, or

(ii)provision of services of any kind, or(iii)investment, or in the business of acquiring, holding,

underwriting or dealing with shares, debentures or other securities of any other body corporate, either directly or through one or more of it’s units or divisions or subsidiaries.

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Definitions• Goods[2(i)]. “Goods” means goods as defined in

the Sale of Goods Act,1930 and includes-(A) Products manufactured, processed or mined.(B) Debentures, stocks and shares after allotment;(C) In relation to goods supplied, distributed or

controlled in India, goods imported in India.

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Definitions

• Person[Sec.2(l)]. “Person” includes- (i) an individual; (ii) a Hindu undivided family; (iii) a company (iv) a firm; (v) an association of persons or a body of

individuals, whether incorporated or not, in India or outside India; [cont’d..]

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Definitions[ being cont’d..]• (vi) any corporation established by or under any Central,

State or Provincial Act or a Government Company as defined in the Sec.617 of the Companies Act, 1956;

• (vii) any body corporate incorporated by or under the laws of a country outside of India;

• (viii) a co-operative society registered under any law relating to co-operative societies;

• (ix) local authority; and• (x) every artificial judicial person, not falling within any of the

preceding sub-clauses.

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Definitions

• Price[Sec.2(o)]”Price” in relation to the sale of any goods or to the performance of any services, includes every valuable consideration, whether direct or indirect, or deferred. It also includes any consideration which in effect relates to the sale of any goods or to the performance of any services although ostensibly relating to any other matter or things.

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Definitions

• Relevant Market[2(r)]:It means a market which may be determined by the Competition Commission with reference to the relevant product market or the relevant geographic market or with reference to both the markets.

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Definitions• Relevant Geographic Market [Sec.2(s): • It means a market comprising the area in which the

conditions of competition for supply of goods or provision of services or demand of goods or services are distinctly homogeneous and can be distinguished from the conditions prevailing in the neighboring areas .

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Definitions

• Relevant Product Market [Sec.2(t)]: It means a market comprising all those products or services which are regarded as interchangeable or substitutable by the consumer, by reason of characteristics of the products or services, their prices and intended use.

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Definitions

– Services[Section2(u)].It means service of any description which is made available to potential users. It includes the provision of services in connection with business of any industrial or commercial matters such as accounting, banking, communication, education, financing, insurance, chit funds, real estate, transport, storage, material treatment , processing, supply of electrical or other energy, boarding, lodging, entertainment, amusement, construction, repair, conveying of news or information and advertising.

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Definitions• Shares[Sec.2(v)]. It means shares in the capital of a company

carrying voting rights and includes- (i) any security which entitles the holder to receive shares with

voting rights; (ii) stock except where a distinction between stock and share is

expressed or implied. Trade[Sec.2(x)].It means any trade, business industry,

profession or occupation relating to the production,supply,distribution,storage or control of goods and includes the provision of any services.

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Definitions

• Turnover [Sec.2(y)].It includes value of sale of goods or services.Words and expressions used but defined in this Act and defined in the Companies Act, 1956 shall have the same meanings respectively assigned to them in that Act [Sec.2(z)].

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WHAT IS A ‘COMBINATION’ UNDER THE ACT?

• The provisions relating to combinations have not yet been notified.

• Broadly, combination includes acquisition of control, shares, voting rights or assets, acquisition of control by a person over an enterprise where such person has control over another enterprise engaged in competing businesses, and mergers and amalgamations between or amongst enterprises where these exceed the thresholds specified in the Act in terms of assets or turnover.

• If a combination causes or is likely to cause an appreciable adverse effect on competition within the relevant market in India, it is prohibited and can be scrutinized by the Commission.

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Prohibition of Certain Agreements, Abuse of Dominant Position & Regulation of Combinations

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

-The Competition Act , 2002, Section 3(1)

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Prohibition of certain agreements, abuse of dominant position and regulation of combinations

[Chapter II-Sec. 3 to 6]

• SECTION.3 provides for prohibition of entering in to anti-competitive agreements.

• SECTION.4 prohibits abuse of dominant position by any enterprise.

• SECTION.5 deals with combination of enterprises and persons: Acquisition of one or more enterprises by one or more persons or acquiring of control or merger or amalgamation of enterprises under certain circumstances specified, shall be construed as combination.

• SECTION.6 provides that no person or enterprise shall enter in to combination which is likely to cause or causes an appreciable adverse effect on competition within the relevant market in India.

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WHAT CONSTITUTES ABUSE OF DOMINANCE?

• Dominance refers to a position of strength which enables an enterprise to operate independently of competitive forces or to affect its competitors or consumers or the market in its favor. Abuse of dominant position impedes fair competition between firms, exploits consumers and makes it difficult for the other players to compete with the dominant undertaking on merit.

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WHAT CONSTITUTES ABUSE OF DOMINANCE?

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.

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WHAT IS AN ANTI-COMPETITIVE AGREEMENT ?

An anti-competitive agreement is an agreement having appreciableadverse effect on competition (AAEC). Anti-competitive agreements include,but are not limited to:-• 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.

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A FIRM PROPOSING TO COMBINE HAVE TO NOTIFY THECOMMISSION

A firm proposing to enter into a combination, shall notify the Commission

• in the specified form disclosing the details of the proposed combination

• within 30 days of the approval of such proposal by the board of directors or execution of any agreement or other document.

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IS THERE COMPULSORY WAIT PERIOD FOR A COMBINATION TOTAKE EFFECT?

• Yes. The proposed combination cannot take effect for a period of 210 days from the date it notifies the Commission or till the Commission passes an order, whichever is earlier. If the Commission does not pass an order during the said period of 210 days the combination shall be deemed to have been approved.

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The above thresholds are presented in the form of a table below:

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Anti-Competitive Agreements (Sec.3)

• Sec.3 provides that no enterprise or person shall enter in to 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. This rule applies to association of enterprises and association of persons while entering in to any such agreement[Sec.3(1)]

• Any agreement entered in to contravention of the provisions contained in Sec.3(1) shall be void[Sec.3(2)]

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• Adverse effect on competition: Any agreement entered in to between enterprises or associations of enterprises or persons or association of persons or between any person and enterprise or practice carried on, or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision of services, which-

• (a) directly or indirectly determines purchase or sale prices;

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……….Anti-Competitive Agreements

• (b) limits or controls production, supply, markets, technical development, investment or provision of services;

• © shares the market or source of production or provision of services by way of allocation of geographical area of market, or type of goods or services or number of customers in the market or any other similar way;

• (d) directly or indirectly results in bid rigging or collusive bidding.

Shall be presumed to have an appreciable adverse effect on competition.

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• “Bid rigging” means any agreement, between enterprises or persons referred to above engaged in identical or similar production or trading of goods or provision of services, which has the effect of eliminating or reducing competition forbids or adversely affecting or manipulating the process for forbidding.

• “Cartel” includes an association or 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, or trade in goods or provision of services[Sec.3(3)].

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• An agreement which causes or is likely to cause an appreciable adverse effect on competition, includes the following agreements also:

(a) tie- in arrangement; requiring a purchaser of goods, as a condition of such purchase, to purchase some other goods

(b) Exclusive supply agreement; restricting in any manner the purchaser in the course of his trade from acquiring or otherwise dealing in any goods other than those of the seller.

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[cont’d]……….An agreement which causes or is likely to cause an appreciable adverse effect on competition, includes the following agreements also;

© Exclusive supply agreement; to limit , restrict or withhold the output or supply of any goods or allocate any area or market for the disposal or sale of the goods.

(d) Refusal to deal; restricts by any method the persons or classes of any persons to whom goods are sold or from whom goods are bought.

(e) Resale price maintenance: Any agreement to sell goods on condition that the prices to be charged on the 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 [Sec.3(4)].

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Anti–competition

• Also known as anti-trust competition.

• Section 3 provides that no enterprise or person shall enter into any agreement in respect of production, supply, distribution, storage acquisition or control of goods or provision of services, which causes or is likely to cause an appreciable adverse effect on competition within India.

• The anti-trust agreements that the companies enter into are of two types, viz. Horizontal & Vertical. These are in contravention of the provisions of the Competition Act, 2002.

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Horizontal v/s Vertical

• These are agreements made between two or more competing firms. Basically called as formation of CARTEL.- Any agreements violating the above Sec.3(1) are void. The reasons are –• Directly or indirectly determines the sale or purchase prices,• Limits or controls production, supply, markets etc.• Shares the market or source of production of services by way of allocation of geographical area etc.• Directly or indirectly involves in bid rigging or collusive bidding.

• These are agreements between firms relating to actual or potential relationship of purchasing or selling to each other with a purpose of dominating the market.

- Any agreements violating the above Sec.3(1) are void. The reasons are –• Tie-in arrangement,• Exclusive supply agreement,• Exclusive distribution agreement,• Refusal to deal,• Resale price maintenance.

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Horizontal Practices• Horizontal merger: Two firms in the same industry

merge• Horizontal Price Fixing (Collusion):Explicit or implicit

agreements in an industry to control prices.• Price Discrimination: Charging customers different

prices that are not justified by cost differences of serving these customers.

• Predatory pricing: Selling at price below cost to drive out arch rival firms.

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Vertical Practices• Refusal to deal: A manufacturer refuses to sell to distributor

or retailer.• Exclusive dealing:A manufacturer grants another firm an

exclusive right to distribute a product.• Exclusive Territory:A manufacturer grants an exclusive

territory to a seller and no other is permitted to sell in that territory.

• Retail Price Maintenance: A manufacturer sets a minimum price below which a retailer cannot sell.

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[Non-application of Section.3]Section.3 does not apply to-

• 1.The right of any person to restrain any infringement of, or to impose reasonable conditions, as may be necessary for protecting any of his rights which have been conferred under the Copy rights Act,1957,Patents Act,1970, the Trade and Merchandise Marks Act, 1958, the Trade Marks Act, 1999, the Geographical indications of Goods(Regulation and Protection) Act,1999, the Designs Act, 2000 and Semi Conductor Integrated Circuits Layout Designs Act,2000.

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Competition commission of India (CCI)

(1) With effect from such date as the Central Government may, by notification, appoint, there shall be established, for the purposes of this Act, a Commission to be called the ‘Competition Commission of India’.

(2) The Commission shall be a body corporate by the name aforesaid having perpetual succession and a common seal with power, subject to the provisions of this Act, to acquire, hold and dispose of property, both movable and immovable, and to contract and shall, by the said name, sue or be sued.The head office of the Commission shall be at such place as the Central Government shall decide from time to time.The Commission may establish offices at other places in India.

- The Competition Act, 2002, Sec.7,(1-4)

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Competition Commission of India [CCI]

Establishment of commission(Sec.7): With effect from such date as the Central Govt. may appoint, there shall be established, for the purposes of this Act, a Commission to be called the “Competition Commission of India”.

Corporate body:It shall be a body corporate. Offices: The head office shall be at a place as the

Central Govt. may decide from time to time.

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Composition of Commission(Sec.8)• A chairperson and not less than two and not more than ten

members to be appointed by the Central Govt.• The Central Govt. shall appoint the Chairperson (Devender

Kumar Sikri) and the members during the first year of operation.(Sec.8(1))

• Qualifications: The Chairperson and every member shall be the persons of ability, integrity and standing, who-

(a) are, or have been, or qualified to be , a Judge of a High Court;(b) Have special knowledge of, and professional experience in, not

less than 15 years, international trade, economics, business, commerce, law, finance, accountancy, management, industry, public affairs, administration or in any other matter which, in the opinion of the Central Government, be useful to the Commission(Sec.8(2))

(c) The chairperson and other members shall be whole time members.(Sec.8(3)).

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Competition Commission of India

• Selection of Chairperson and other Members(Sec.9)• Term of office of Chairperson and other Members(Sec.10) Vacancy and Oath of Office• Resignation, Removal and Suspension of Chairperson and other

members(Sec.11)• Restriction on employment in certain cases (Sec.12)• Salary and Allowances(Sec.14)• Vacancy not to invalidate the proceedings of the Commission(Sec.15)• Appointment of Director General, etc.(Sec.16)

salary and appointment• Registrar and officers and other employees of he Commission(Sec17).

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Duties and Powers of CCI

• Sec.18-20 deals with the duties.

- Summary of the duties are :• Eliminate practices having adverse effect on competition.• Promote and sustain competition.• Protect the interests of the consumers.• Ensure freedom of trade carried on by other participants in the market.• Conduct enquiry into cases of abuse of dominant position and combinations.

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WHAT ORDERS THE COMMISSION CAN PASS IN CASE OF ANTICOMPETITIVEAGREEMENTS AND ABUSE OF DOMINANT POSITION?

• During the course of inquiry, the Commission can pass interim order restraining a party from continuing with anti competitive agreement or abuse of dominant position.

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The Commission can impose a penalty of not more than 10% ofthe average turnover for the last 3 preceding financial years ofthe enterprise. In case of a cartel, the Commission can imposeon each member of the cartel, a penalty of up to 3 times itsprofit for each year of the continuance of such agreement or upto 10% of its turnover for each year of continuance of suchagreement, whichever is higher.

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After the inquiry, the Commission may direct a delinquententerprise to discontinue and not to re-enter anti-competitiveagreement or abuse its dominant position. The Commission mayalso direct modification of such agreement. The Commission may direct division of enterprise in case itenjoying dominant position to ensure that such enterprise doesnot abuse its dominant position.

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Case study : 1(Relating to the Dominance abuse and Appellate function)

Relating Yash Raj films and “Son of Sardar”

The tassel between Yash Raj films and Ajay Devgan Films

- Case no. 66 of 2012

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• Informant:

- Ajay Devgan Films

• Opposite Parties:

- Yash Raj films

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• The informant’s grievance :

Opposite party released a mega starrer film ’ Ek Tha Tiger’ on 15th August 2012. Meanwhile, they were also contemplating release of the film ‘Jab Tak Hain Jaan’ during Diwali. They have put a condition on single screen and multiplex owners that if they wanted to exhibit ETT then they would have to simultaneously agree to exhibit the other film JTHJ.

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•Claim highlights :

i. Abuse of dominance

ii. Violation of Sec 3 and Sec 4 of the CCI

iii. Informant feared that he will not get enough theatres for his own film ‘Son of Sardar’

iv. Tie in arrangement and vertical agreements

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• Result of the case :

i. Case dismissed.

ii. CCI did not find any misgivings on the opposition’s side.

iii. Fit for closure under section 26 (2) of the act.

• Reasons for Closure :

i. Tie in arrangements are not violative of Sec. 3, if it does not cause appreciable adverse effect on competition of India.

ii. Market cannot be constricted to EID and Diwali. Market is considered as a whole throughout the year.

iii. Sec. 4- domination of market not defined.

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Case study : 2 (Relating to the Bid Rigging and Price Fixation)

Aluminium Phosphate tablets Manufacturer’s Case

- Case no. 02/2011

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• Informant:

- Food Corporation of India (FCI)


- United Phosphorous Limited- Sandhya Organic Chemicals Pvt. Ltd.- Excel Crop Care Limited- Agrosynth Chemicals Limited

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• Allegations:

- During last 8 years the opposite parties had quoted identical rates and negotiations are also reduced to same rate.

- The manufacturers of the ALP tablets have formed a cartel.

- One of the manufacturers is using its dominance to compel others to quote at same rates.

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• Result of the Case:

- CCI decides to impose penalty at a rate of 9% on average of three year turnovers of the three companies.

- This works out to Rs 252 crores for UPL, Rs 63 crores for Excel Crop Care and Rs 1.57 crores for Sandhya Organics.

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Case study : 3(Relating to the Cartel Formation and Price manipulation)

Advertising Agencies GuildVS

Indian Broadcasting Foundation & its members

- Case no. 35 of 2013

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• Informant:

- Advertising Agencies Guild


- Indian Broadcasting foundation & its members (IBF)

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•Case Highlights

- Opposite parties were forcing the advertising agencies to agree to the new mechanism of billing (Gross Billing To Net Billing)

- They collectively boycotted and did not broadcast advertisements on their Channels for two days viz. 01.05.2013 & 02.05.2013.

- Violation of section 3(3)

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Result of Case

• Case was dismissed.

• IBF wasn't found to be abusing their dominance.

• The agreement deadline was increased to one month.

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Reasons for Closure

• Billing system has no restriction under competition Act.

• Competition Act is applicable only to price fixation, market sharing collusive bidding etc..,

• The boycotting was pre-mentioned by the so formed committee of IBF.

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• Informant:

- Indian Glycols Ltd.


- Indian Oil Corporation Ltd (IOCL).- Hindustan Petroleum Corporation Ltd (HPCL).- Bharat Petroleum Corporation Ltd (BPCL).- Indian Sugar Mills Association (ISMA).- And the corresponding ministries..

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• The informant’s grievance :

- The fixing of price of Ethanol to Rs27/ltr by Indian Sugar Mills Association (ISMA) with the collaboration of Cabinet Committee of Economic Affairs.

- Enforcement of agreement of Cartelization on the government body by the president of ISMA.

- The price fixation by the four OMC’s and by various suppliers who are in horizontal relationship with each other.

- The chain from ISMA to certain Ministries and then to OMCs were inter related in the fixing the prices.

v/s

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• Claim highlights

- Act of price fixation- Section 3 (3) (a), (b) & (c) are violated.- Act of abuse of dominant position.- Section 4 (2) (a) & (e) are violated.

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•Results

I. Case was dismissed.II. The Commission did not find any violation in the section 3 and 4 of the

act.III. The order was given under section 26 (2) of the competition act, 2002.IV. All the opposite parties came out clean in the case.

•Reasons

I. The price fixed by the Cabinet Committee of Economic Affairs (CCEA), for the procurement of Ethanol cannot be considered as anti competitive in nature as it is set up to encourage the farmers to produce more sugarcane as ethanol comes from molasses in sugarcane.

II. The Formation of cartelization was not found. III. Sec. 4- domination of market not defined.