CONSUMER PROTECTION UNDER COMPETITION LAW: LEGITIMACY OF CONSUMER WELFARE AS A GOAL UNDER INDIAN COMPETITION LAW Dissertation submitted in part fulfillment for the requirement of the Degree of LL.M Submitted by Supervised by DIKSHITA DAMODARAN DR. SUSHILA NATIONAL LAW UNIVERSITY DELHI (INDIA) 2016
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CONSUMER PROTECTION UNDER
COMPETITION LAW: LEGITIMACY OF
CONSUMER WELFARE AS A GOAL UNDER
INDIAN COMPETITION LAW
Dissertation submitted in part fulfillment for the requirement of the
Degree of
LL.M
Submitted by Supervised by
DIKSHITA DAMODARAN DR. SUSHILA
NATIONAL LAW UNIVERSITY
DELHI (INDIA)
2016
i
DECLARATION BY THE CANDIDATE
I hereby declare that the dissertation entitled “Consumer Protection under
Competition Law: Legitimacy of Consumer Welfare as a Goal under Indian
Competition Law” submitted at National Law University, Delhi is the outcome of my
own work carried out under the supervision of Dr. Sushila, Assistant Professor,
National Law University, Delhi.
I further declare that to the best of my knowledge, the dissertation does not contain any
part of work, which has not been submitted for the award of any degree either in this
University or in any other institution without proper citation.
Dikshita Damodaran
Roll No. 32 LLM 15
National Law University, Delhi
New Delhi
May 30, 2016
ii
CERTIFICATE OF SUPERVISOR
This is to certify that the work reported in the LL.M dissertation entitled “Consumer
Protection under Competition Law: Legitimacy of Consumer Welfare as a Goal
under Indian Competition Law” submitted by Dikshita Damodaran at National Law
University, Delhi is a bona fide record of her original work carried out under my
supervision. To the best of my knowledge and belief, the dissertation: (i) embodied the
work of candidate herself; (ii) has been duly completed; and (iii) is up to the standard,
both in respect of content and language, for being referred to the examiner.
Dr. Sushila
Assistant Professor,
National Law University, Delhi
New Delhi
May 30, 2016
iii
ACKNOWLEDGEMENTS
After these few intensive months, I am writing the acknowledgments and giving a final
touch to my dissertation. The whole period employed for making this dissertation was a
huge learning experience and had a very big impact on me not just academically but also
personally. I would like to reflect on the people who constantly stood beside me and
helped me throughout the completion of my research.
First of all, I express my deepest gratitude to my mentor Dr. Sushila for her constant
guidance and continuous encouragement. It was her valuable suggestions and deep
knowledge in the subject that helped me in the successful accomplishment of this work. I
express my gratefulness to her for being in touch with me constantly throughout the
making of this dissertation. Despite her busy schedule, the door to her office was always
open whenever I ran into a trouble spot or had questions about my research. I am deeply
indebted to her for being the kind of a mentor she was which helped me make this work
how it stands today.
Even though it’s my name that appears on the cover of this dissertation, there is no way I
can move further without naming the three most important people of my life without
whom I wouldn’t have been able to write a single word. This dissertation is a product of
my grandmother’s blessing, my father’s belief and my mother’s prayers. I dedicate this
dissertation to you in its entirety. You three have been a constant source of inspiration,
love, and strength throughout my life. Words fall short if I attempt to acknowledge your
sacrifices.
My joy knows no bounds in expressing my cordial thankfulness to my best friends
Shreya Sinha and Shivank Datta for their unfailing support and backing whenever I lost
confidence while working. I have been really blessed with these two amazing people and
thank them for being extremely patient and listening to my ridiculous whims whenever I
got exhausted and lost hopes of completing my work on time.
I am also thankful to my friends Anam Rais Khan, Arya Singh, Kamakhya Sharma,
Garima Bhardwaj, Prerna Chugh and Saswatee Mohapatra at the National Law
University, Delhi for not just being a source of happiness and energy by deliberating over
iv
my problems and findings, but also happily talking about the things other than work
which made my journey at the University memorable.
I would like to thank the entire teaching staff of the University for helping me broaden
my horizon in the subject of Competition Law and providing with a conducive
environment for research.
I humbly extend my gratitude to all the concerned persons who helped me in this regard.
Thank you very much everyone!
v
TABLE OF CONTENTS
TABLE OF CONTENTS
TITLE
PAGE NO.
DECLARATION BY CANDIDATE i
CERTIFICATE BY CANDIDATE ii
ACKNOWLEDGMENTS iii
LIST OF ABBREVATIONS ix
LIST OF CASES xi
LIST OF GRAPHS AND FIGURES xiv
CHAPTER 1 - INTRODUCTION
1-11
1.1 PREFACE AND CONCEPTUAL FRAMEWORK 1
1.2 LITERATURE REVIEW 4
1.3 RESEARCH METHOD 8
1.3.1 STATEMENT OF PROBLEM 8
1.3.2 OBJECTIVES 9
1.3.3 RESEARCH QUESTIONS 9
1.3.4 RESEARCH DESIGN, COLLECTION, AND ANALYSIS 10
1.3.5 LIMITATIONS OF THIS RESEARCH 10
1.4 CHAPTERISATION 11
vi
CHAPTER 2 - UNDERSTANDING THE CONSUMER
WELFARE STANDARD
12-22
2.1 THE UNDERLYING RATIONALE 12
2.2 THE NOTION OF CONSUMER WELFARE IN ECONOMICS 14
2.3 MEANING OF THE TERM ‘CONSUMER’ UNDER
COMPETITION LAW
16
2.4 COMPETITION AS A MEANS TO INCREASE CONSUMER
WELFARE
19
CHAPTER 3 - PROTECTION AND WELFARE OF
CONSUMER UNDER COMPETITION LAWS IN INDIA,
USA, AND EU
23 - 36
3.1 UNITED STATES OF AMERICA 23
3.1.1 CHICAGO SCHOOL – JUSTIFICATION OF THE
CONSUMER WELFARE STANDARD
24
3.1.2 CRITICS OF CHICAGO SCHOOL–EMERGENCE OF
CONSUMER INTEREST STANDARD
25
3.1.3 ANALYSIS OF THE PRESENT FRAMEWORK OF
ANTITRUST REGIME IN RESPECT TO THE CONSUMERS
26
3.2 EUROPEAN UNION 27
3.2.1 EFFICIENCIES AS MEANS TO ACHIEVE CONSUMER
AND SOCIAL WELFARE
28
3.2.2 PROVISIONS IN THE TFEU FOR THE PROTECTION OF
CONSUMERS
29
3.3 INDIA 31
3.3.1 MONOPOLIES AND RESTRICTIVE TRADE PRACTICES
ACT AND CONSUMER PROTECTION ACT – PLAYING
COMPLEMENTARY ROLES
31
3.3.2 RAGHAVAN COMMITTEE 32
vii
3.3.3 COMPETITION ACT 33
3.3.4 NATIONAL COMPETITION POLICY 35
CHAPTER 4 - INTERFACE OF COMPETITION AND
CONSUMER POLICIES
37- 47
4.1 CONSUMER WELFARE AS A SHARED GOAL 38
4.1.1 CONSUMER SOVEREIGNTY 40
4.1.2 POSSIBILITY OF HONEST TRANSACTIONS 41
4.1.3 ABILITY OF CONSUMER LAW TO INTERVENE IN CASE
OF FAILURE OF COMPETITION LAW
42
4.1.4 RESOLUTION OF MARKET FAILURE 42
4.2 COMPARING THE COMPETITION LAW AND CONSUMER
LAW
43
4.2.1 DEFINITION OF CONSUMER 43
4.2.2 UNFAIR TRADE PRACTICES 44
4.2.3 COMPLAINANT v. INFORMANT 45
4.2.4 INTENT BEHIND PASSING ORDERS BY BOTH FORUMS 46
4.2.5 SCHEMES OF THE ACT 46
4.3 UNDERSTANDING THE EFFICACY OF CONSUMER
WELFARE UNDER COMPETITION LAW
47
CHAPTER 5 - ROLE PLAYED BY COMPETITION
AUTHORITIES IN PROTECTING CONSUMER
INTERESTS
48 - 63
5.1 THE COMPETITION AUTHORITIES AND ENFORCEMENT
PROCESS
49
5.2 CASES DISCUSSING THE ASPECT OF CONSUMER
INTEREST UNDER COMPETITION LAW
51
viii
5.2.1 BELAIRE OWNER’S ASSOCIATION V. DLF LIMITED 52
5.2.2 MCX STOCK EXCHANGE LTD. v. NATIONAL STOCK
EXCHANGE OF INDIA LTD
55
5.2.3 JYOTHI SWAROOP ARORA v. TULIP INFRATECH LTD.
AND ORS.
56
5.2.4 OTHER CASES 57
5.3 CASES CLOSED BY THE COMMISSION DUE TO LACK OF
COMPETITION ISSUE
59
5.3.1 SUBHASH YADAV V. FORCE MOTOR LTD. & ORS. 59
5.3.2 SANJEEV PANDEY V. MAHENDRA & MAHENDRA &
ORS
60
5.3.3 SMT. GEETA CHATTERJEE V. M/S BONGAON GAS
SERVICE
60
5.3.4 SHRI GIRIJI MEENA V. MOHAN GAS SERVICE 60
5.3.5 PRAVAHAN MOHANTY V. HDFC BANK LTD 60
5.3.6 PANKAJ AGGARWAL AND ORS. V. DLF GURGAON
HOME DEVELOPERS PRIVATE LIMITED
61
5.4 COMPETITION ADVOCACY – A FRIEDNLY APPROACH 61
5.5 LESSONS FROM THE PRESENT WORKING OF THE
COMPETITION AUTHORITIES
62
CHAPTER 6 - CONCLUSION AND
RECOMMENDATIONS
64-67
BIBLIOGRAPHY
xv-xxii
ix
LIST OF ABBREVIATIONS
AAEC - Appreciable Adverse Effect on Competition
CCI - Competition Commission of India
Cir - Circuit
COMPAT - Competition Appellate Tribunal
COPRA - Consumer Protection Act, 1986
DG - Director General
DOJ - Department of Justice
E.U - European Union
EC - European Commission
ECJ - European Court of Justice
FTC - Federal Trade Commission
ICN - International Competition Network
MRTP - Monopolies and Restrictive Trade Practices Act, 1969
NCP - National Competition Policy
OECD - Organisation for Economic Co-operation and Development
R&D - Research and Development
TFEU - Treaty on the Functioning of the European Union
x
UNCTAD - United Nations Conference on Trade and Development
UTP - Unfair Trade Practices
xi
LIST OF CASES
1. Arun Kumar Tyagi v. The Software Engineering Institute, The High Court of
Uttrakhand and The HCL Technologies Ltd, [2011]110 SCL 157(CCI).
2. Ashoka Smokeless Coal Ind. P. Ltd. v. Union of India, (2007) 2 SCC 640.
3. AstraZeneca AB and AstraZeneca plc v. European Commission [2010] ECR II-
2805.
4. Belaire Owner's Association Vs. DLF Limited Haryana Urban Development
Authority Department of Town and Country Planning, State of Haryana,
[2011]104 CLA398(CCI).
5. Broadcom Corp. v. Qualcomm Inc, 2008 WL 66932.
6. Competition Commission of India v. SAIL, (2010) 10 SCC 744.
7. Continental TV Inc v GTE Sylvania Inc., 433 US 36 (1977).
8. DLF Home Developers Limited Vs. The Competition Commission of India and
Ors., 2016CompLR60(CompAT).
9. Dr. Miles Medical Co. v. John D. Park and Sons., 220 U.S. 373 (1911).
10. Ghanshyam Dass Vij Vs. Bajaj Corp. Ltd. and Ors., MANU/CO/0083/2015.
11. Government of Kerala Vs. National Insurance Co. Ltd. and Ors.,
MANU/CO/0062/2015.
12. Hoffmann-La RocheAG v Commission., [1979] ECR 461.
13. In Re: Domestic Air Lines, RTPE 05/2009 of MRTPC and Suo-Motu
(11.02.2009- CCI)
14. Jupiter Gaming Solutions Private Limited v. Government of Goa and Anr.,
[2012]106CLA339(CCI).
15. Jyoti Swaroop Arora v. Tulip Infratech Ltd. and Ors., 2015CompLR109(CCI).
16. LAPD v. Gen. Elec. Corp. 132 F.3d 402 (1997).
17. Laxmi Engineering Works v. P.S.G. Industrial Institute, 1995 AIR 1428.
xii
18. LC Nungesser Kg E Kurt Eisele v Commission of the European Communities,
Case 258/78, (1982).
19. M/s Bharat Petroleum Corporation Ltd. and M/s Hindustan Petroleum
Corporation Ltd., 2012CompLR563(CCI).
20. M/s Metalrod Ltd. Ghaziabad v. M/s Religare Finvest Ltd., New Delhi,
MANU/CO/0080/2011.
21. M/s Metalrod Ltd. Ghaziabad v. M/s Religare Finvest Ltd., New Delhi,
MANU/CO/0080/2011.
22. M/s Royal Energy Ltd. v. M/s Indian Oil Corporation Ltd.,
23. MCX Stock Exchange Ltd. v. National Stock Exchange of India Ltd.,
2011CompLR129(CCI).
24. Metro v Deutsche Grammophone.,[1971] 470.
25. Mr. Ramakant Kini Informant v.Dr. L.H. Hiranandani Hospital,
2014CompLR263(CCI).
26. Mrs. Manju Tharad, Proprietress and M/s. Manoranjan Films, Kolkata v. Eastern
India Motion Picture Association (EIMPA), Kolkata and The Censor Board of
Film Certification, Kolkata, [2012]110CLA136(CCI).
27. Pankaj Aggarwal and Ors. v. DLF Gurgaon Home Developers Private Limited.,
2015CompLR728(CCI).
28. PostDanmark A/S v. Konkurrencerådet [2012] ECR I-0000.
29. Pravahan Mohanty v. HDFC Bank Ltd., Case No.17/2010.
30. Sanjeev Pandey v. Mahendra & Mahendra & Ors., Case No. 17 of 2012.
31. Savitri Leasing and Finance Ltd. D-91, Ambabari, Jaipur, Rajasthan v. Punjab
National Bank (PNB) HO. 7, Bhikaji Cama Place, New Delhi-66, PNB, 2, Nehru
Place, Tonk Road, Jaipur -15 and PNB, Raja Park Branch, Jaipur, Rajasthan,
MANU/CO/0057/2011.
32. Shri Giriji Meena v. Mohan Gas Service., File No.C-22/2009/DGIR
xiii
33. Shri Neeraj Malhotra, Advocate v. North Delhi Power Limited, BSES Rajdhani
Power Limited and BSES
34. Smt. Geeta Chatterjee v. M/s Bongaon Gas Service., Case no. 192 of 2008
35. State Oil v Khan., 522 US 3 (1997).
36. Subhash Yadav v. Force Motor Ltd. & Ors., MANU/CO/0102/2012
37. The National Stock Exchange of India Ltd. Vs. Competition Commission of
India, 2014CompLR304(CompAT)
38. United Brands Company v Commission., [1978] ECR 207.
39. United States v. Arnold, Schwinn & Co., 388 U.S. 365 (1967).
40. United States v. Syufy Enters., 903 F2d 659 (9th Cir. 1990)
41. V. Ramachandra Reddy and Ors. v. HDFC Bank Ltd. and ICICI Bank Ltd.,
MANU/CO/0023/2011.
42. Yamuna Power Limited, MANU/CO/0026/2011.
xiv
LIST OF GRAPHS AND FIGURES
FIGURE
NUMBER
CAPTION
PAGE
NUMBER
1.
Marshallian Consumer Surplus
16
2.
The conceptual framework for competition and consumer policies
43
1
CHAPTER 1
INTRODUCTION
1.1 Preface and Conceptual Framework
The economic foundation of any market economy is formed by the interplay between
supply and demand. The enterprises are expected to produce the goods and services
that are consumed and bought by the consumers. Such a market-oriented process
which is determined by the market forces is done with the help of this demand and
supply. But in reality, this market process doesn’t work on this ‘invisible hand’ theory
and experiences considerable state intervention for its regulation. This interventionist
approach in the market process, like any other social policy, is grounded on the same
philosophy of welfare state with an aim to correct undesirable market effects and for
strengthening the position of the consumers’.1
The importance attached to strengthening the position of the consumers’ in markets
emanates from the rudimentary issue of Consumer Protection. The present idea of
consumer protection is founded on the basic realisation of competition and markets
being imperfect in nature susceptible to failures. On the other hand, the emergence of
consumerist society after the World War II2 which was in response to the imbalance
of economic power between the consumers and the market players also played an
important role in the development of remedial measures in the interests of the
consumers.3 The acknowledgment of this model of imperfect competition and market
failures admits the need for the protection of competition and consumers.
In earlier times, the link between deception of consumers and adverse competitive
effects was taken for granted but it wasn’t clear as to which the primary was and
which the secondary concern was.4 The option to choose the best from available
1 ROBERT DAHL, DILLEMAS OF PLURALIST SOCIETY 1 (1981).
2 Halina Szejnwald Brown and Philip J. Vergragt, From Consumerism to Wellbeing: Toward a
Cultural Transition? Journal of Cleaner Production: Special Volume on “Absolute Reductions” (2014),
available at http://www.ukayamut.com/wp-content/uploads/2015/03/FINAL-Brown-Vergragt-
Consumerism-and-Wellbeing.pdf. 3 REICH, N., MICKLITZ, H.-W., & COMMISSION OF THE EUROPEAN COMMUNITIES,
CONSUMER LEGISLATION IN THE FEDERAL REPUBLIC OF GERMANY: A STUDY 2(1981). 4 Thomas B. Leary, Competition Law and Consumer Protection Law: Two Wings of the Same
House,72 Antitrust L.J. 1147 , 1147–48 (2005)
2
alternatives becomes a real tool for growth in the economy and welfare of the people.
This makes competition crucial for the better functioning of the markets and
providing best choices to consumers. Due to this reason, consumers are supposedly
the most important economic agents of the market.5 The absence of competition in the
marketplace has the effect of reducing the consumers’ right to choice and makes the
vulnerable section of society susceptible fall into the trap of poverty due to the
resultant anticompetitive practices.6 Whereas, competition law has a potential to
check such behaviour. The international experiences point towards the role played by
competition in promoting innovation increases static and dynamic efficiency and
productivity and improving the quality of goods and services.7
The competition law of any jurisdiction, existing in the world today, aim at the
achievement of certain goals which are connected to the peculiarities and the
social/political ideologies of any country. But one goal which does not diminish in
importance and exists as a recognized goal in all the national antitrust policies is the
protection of consumer interests. This is due to the simple reason that competition was
regarded as the “consumer’s best friend”.8 The theory of competition based on the
model of workable competition focusses on consumer welfare as one of the primary
objectives. The implementation of the consumer welfare standard in competition law
instead of being an economic or legal rationale was a political choice.
“The term consumer welfare is the most abused term in modern antitrust analysis.”9
This statement itself makes it necessary to reconnoitre the underlying economic and
legal arrangement of the consumer welfare standard under the competition law
regime. In the 1960s, Robert Bork in his article The Goals of Competition law
propounded a simple thesis stating that "existing statutes can be legitimately
interpreted only according to the canons of consumer welfare,"10
and also stressed on
5 Meglena Kuneva, Consumers and Competition: The quest for Real Opportunities, 8 Competition L.
Int'l 7 (2012), available at
http://heinonline.org/HOL/LandingPage?handle=hein.journals/cmpetion8&div=5&id=&page=. 6 CUTS CCIER, National Conference on "Competition Regime – Benefiting the Consumer" available
at http://www.cuts-ccier.org/National_Conference_on_Competition_Regime-
Benefiting_the_Consumer.htm. 7 Id.
8 Norbert Reich, Diverse Approaches to Consumer Protection Philosophy, Journal of Consumer Policy
279, 257-92 (1992) 9 Joseph F Brodley, The economic goals of antitrust: efficiency, consumer welfare, and technological
progress, (1987)62 NYUniv LR 1020, p 1032. 10
Robert H. Bork, The Goals of Antitrust Policy, 57 AM. ECON. REv. 242, 242-53(1967).
3
the fact that "consumer welfare is the only legitimate goal of antitrust, not because
antitrust is economics, but because it is law."11
Thus, in the opinion of Bork, it is
undeniable that consumer welfare ought to be the touchstone antitrust policy.12
The Bundeskartellamt has argued that "the economic freedom model is based on the
belief that in the long run both goals [economic freedom and consumer welfare] are
not in conflict as safeguarding of a vivid competition process will enhance consumer
welfare."'13
According to the Bundeskartellamt, there is no doubt as to as both aims at
safeguarding a vivid competition process that will enhance consumer welfare.14
Consumer welfare aims at the express gain by the consumers in the form of lower
prices, high-quality products, a wide selection of goods and services, and
innovation.15
Consumer welfare though predominantly is concerned with efficient
transactions and cost-savings but it is also concerned with the various sociological
aspects of the market like the safety and health of consumers. The consumer welfare
standard in competition law helps to verify primary goals of competition policy and
also helps to demarcate the general legal framework of competition law enforcement
by determining the foundation for the standard of proof necessary in investigation and
litigation.
India responded to globalization, by opening up its economy, removing controls and
resorting to liberalization.16
Naturally, the Indian market started to face competition
from the players within the country and outside. Competition has played a significant
role in unlocking the fuller growth potential of Indian economy. This lead to the
enactment of the Competition Act, 2002 with the main aim to promote the free
competition in India and to protect the interest of the consumers. Thus, it becomes
11
Id. 12
James R. Eiszner, Antitrust Civil Damages Remedies: The Consumer Welfare Perspective, 75
UMKC L. Rev. 375 377-78(2006). 13
Bundeskartellamt/Competition Law Forum, A Bundeskartellamt/Competition Law Forum Debate on
Reform of Article 82: a 'Dialectic' on Competing Approaches, 2 European Competition Journal 211,
218(2006). 14
Liza Lovdahl Gormsen, The Conflict Between Economic Freedom and Consumer Welfare in the
Modernisation of Article 82 EC, 3 Eur. Competition J. 329 2007 available at
refining their already established goals according to the pressing needs and
circumstances.
On the other hand, relatively young jurisdictions like India are still confused as to the
achievement of this object which is easily witnessed by looking at the clashes existing
between the regulatory and enforcement authorities of competition and consumer law.
The present work tries to explore the legitimacy of this consumer welfare standard as
one of the primary goals of the Indian Competition Law by exploring the position of
same in mature jurisdictions like the European Union and the United States to cull out
lessons for India. The work culminates with certain suggestions and recommendations
for clear understanding and achievement of this goal.
1.3.2 Objectives
The following are the objectives of this study:
a) To analyse basis and underlying of the Consumer Welfare standard
b) To understand the evolution, origin and meaning of the protection and welfare
of consumer under competition laws in India, the USA, and EU
c) To understand the interface between Competition Act and Consumer
Protection Act and analyse how far the Competition Act helps in serving the
object of consumer protection
d) To analyse the Role of Competition authorities in consumer protection
e) To render certain suggestions and recommendations as to how the purpose of
protecting the consumer interest mentioned in the preamble can be achieved
more effectively.
1.3.3 Research Questions
1. Whether the protection of consumer interest rests as an ultimate objective of
competition law, or is it a consequence of the enforcement of this law?
2. Whether the competition authorities play a proactive role in directly protecting
the consumer interest as their duty under the Competition Act, or exercise
certain amount of caution?
3. Whether the present framework of the Competition law can effectively deal
with the protection of consumers or calls for an urgent need for reforms?
10
1.3.4 Research Design, Collection, and Analysis
This work in its nature is a qualitative enquiry i.e. a doctrinal legal research aiming at
dealing with the various issues relating to consumer protection under the competition
law in India, and comparing and contrasting the position in other jurisdictions. The
research is purely doctrinal in nature involving descriptive and analytical judicial
method, however; assorted techniques of data collection and interpretation have been
used throughout the work. For instance, while analysing the American and European
stands on the protection of consumer welfare the grounded theory method of
collecting and, simultaneously, analysing the data, which involves exhaustive,
constant comparison between small units of text have been utilised.36
For the
comparative analysis of India with other jurisdictions a micro approach37
of data
analysis has been utilised.
The various databases, on-line search and the websites of Regulatory Authorities like
FTC, DOJ, EC, and CCI had been of great help. In order to present the necessary
economic considerations and analysis of the consumer welfare standard; the relevant
opinions of well-known scholars have been quoted and expressed.
1.3.5 Limitations of this Research
The jurisdictions of USA and UK being very old in their application of competition
laws have spoken widely about the protection of consumer interest under competition
law and have evolved a huge jurisprudence in this regard. But being a new kid on the
block in its application and enforcement of competition laws, India doesn’t have the
similar materials on the subject in comparison to the other matured jurisdictions.
Thus, there are two major limitations of this research firstly, since, this is an
extremely broad area in other countries, overlooking the voluminous literature
available on this subject becomes impossible whereas it was difficult to find materials
in reference to India. Thus, one cannot expect a complete evaluation of all the aspects.
Secondly, being a very narrow area it sometimes became difficult to cull out new
points in relevance to India without being repetitive in the content.
36
Greg Guest ET. AL., Collecting Qualitative Data, A Field Manual for Applied Research, 13 (2012),
available at http://www.sagepub.in/upm-data/48453_ch_1.pdf. 37
GEOFFREY SAMUEL, AN INTRODUCTION TO COMPARATIVE LAW THEORY AND
METHOD 50 (2014).
11
1.4 Chapterisation
After this brief introduction of my topic and specified objectives of my research, the
Second Chapter of this dissertation aims at understanding the consumer welfare
standard, its underlying rationale, its economic notion and competition as a means to
increase the consumer welfare. This chapter lays the foundation for understanding the
meaning of this particular goal of competition laws.
The Third Chapter is an attempt to understand the origin, evolution, and working on
protection of consumer interest standard in USA, UK and comparing their position
with India. This chapter also analyses the protection of consumer interest standard vs.
promotion of consumer welfare standard and its implications. This chapter primarily
tries to understand the possible analogy and the historical evolution of this principle
under the laws of India and other jurisdictions.
The Fourth chapter is an examination of the interface between the Competition and
Consumer laws. It aims in studying and exploring the links between competition and
consumer policies for the purpose of serving consumer protection. The chapter would
not just look at the point of intersection of these laws but would also lay its emphasis
in understanding the differences in order to give full effect to its implementation.
The Fifth Chapter is the major part of the analysis and makes an effort to understand
the role played by competition authorities in protecting the consumer interests. This
chapter looks at the regulatory framework and also contains the case-analysis of
certain important matters brought before these authorities. This chapter makes an
endeavor to understand the present stand taken by the authorities and understand how
this goal of protecting the consumers in the preamble is achieved and whether there
exist any limitations in its achievement.
The closing Chapter is that of Conclusion whereby the entire research findings have
been summed up. Along with the conclusion, certain suggestions and
recommendations also form a part of this chapter.
12
CHAPTER 2
UNDERSTANDING THE CONSUMER WELFARE
STANDARD
The government of every State aims in performing the various administrative
functions for the welfare of its people. This also includes the economic welfare. The
economic welfare is achieved by the government by playing various roles including
the formulation of policies aiming the best for the common man. This function is
performed in a way by examining what are the governmental policies that are likely to
promote economic welfare and what policies are going to obstruct it.1In this manner
the government plays a very major role in protecting the interest of the consumers in
their state and this phenomenon is not a result of political idealism rather, the
governmental intervention between the buyer and the seller is an outcome of the less
bargaining position of the consumer vis-à-vis the seller due to innovation in
technology and complexity.2 Thus, the fundamental goal of the government is to
ensure equality in bargaining power between the buyers and sellers which results in
the efficient allocation of resources for an operation of free enterprise economy and
for an effective market-oriented system.
2.1 The Underlying Rationale
The fundamental function of the government i.e. the enactment of every legislation
starts with one basic question as to- ‘what is the ultimate objective of bringing it into
force?’ The competition policy of any jurisdiction also analyse this basic question.
This objective of Competition Law is not limited to only being economic but it can
also be political and social as well. But this basic objective also depends on the legal
and social structure of that jurisdiction source through which the Competition policy
derives its authority. In India, the validity and requirement of the Competition Law
emanates from the Article 383 and 39
4 of the Constitution of India which provides for
1 VINOD DHALL, COMPETITION LAW TODAY 431 (2007).
2 Hon. William B. Saxbe, The Role of the Government in Consumer Protection: The Consumer Frauds
and Crimes Section of the Office of the Ohio Attorney General, Ohio State Law Journal 29 (1968),
available at http://kb.osu.edu/dspace/bitstream/handle/1811/69018/OSLJ_V29N4_0897.pdf. 3 Art. 38 of The Constitution Of India 1950: - The State to secure a social order for the promotion of
welfare of the people
13
the State to secure a social order for the promotion of welfare of the people and
certain principles of policy to be followed by the State. In order to secure the same,
the Monopolies and Restrictive Trade Practices Act, 1969 was enacted, whose main
aim was to prevent the concentration of economic power, for the control of
monopolies and for the prohibition of monopolistic and restrictive trade practices.5
But the present act was proved insufficient in the wake of the varying economic
situation and the subsequent economic reforms in the year 1991. The necessity for a
new law has its origin in Finance Minister’s budget speech in February, 19996:
“The MRTP 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 committee to examine this range of issues and propose a modern
competition law suitable for our conditions.”
Thus, there arose a need to foster competition which required a new Act to be enacted
in place of the then MRTP Act. This gave rise to the Competition Act, 2002. Under
the Statement of the Objects and Reasons to the Act the reason for enacting the new
law is mentioned in the following words, “In the pursuit of globalization, India has
responded by opening up its economy, removing controls, and restoring to
liberalization”.
The objective of the Act can be further gathered from its preamble which states- ‘An
act to provide, keeping in view of the economic development of the country, for the
(1) The State shall strive to promote the welfare of the people by securing and protecting as effectively
as it may a social order in which justice, social, economic and political, shall inform all the institutions
of the national life
(2) The State shall, in particular, strive to minimize the inequalities in income, and endeavour to
eliminate inequalities in status, facilities and opportunities, not only amongst individuals but also
amongst groups of people residing in different areas or engaged in different vocations. 4 Art. 39 of The Constitution Of India 1950:- Certain principles of policy to be followed by the State:
The State shall, in particular, direct its policy towards securing
Cl (b) that the ownership and control of the material resources of the community are so distributed as
best to subserve the common good;
Cl (c) that the operation of the economic system does not result in the concentration of wealth and
means of production to the common detriment; 5 Preamble, THE MONOPOLIES RESTRICTIVE TRADE PRACTICES ACT, 1969
6 Dr. S Chakravarthy, MRTP Act Metamorphoses Into Competition Act, (Feb.23, 2016, 5:45 pm),
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 trade carried on by other participants in
markets, in India...’
The above-mentioned objectives make it clear that the Competition Law derives its
authority from the Part IV of the Constitution and in its nature is a welfare legislation
which aims in the protection and promotion of an individual’s rights, and for the
dignity and welfare of the citizen in turn making it essential to provide for the welfare
of the individual as a consumer.
2.2 The Notion of Consumer Welfare in Economics
The authorities present worldwide have many at times articulated that they do not
have an explicit definition of consumer welfare and there has been various reasons
expressed for the same without any concrete answers. The reason for the same is the
notion of consumer welfare sometimes becomes very complex in competition law in
its understanding.
A static analysis provides that the concept of consumer welfare is synonymous to
consumer surplus whereas the dynamic analysis provides for with a broader scope
being equated to total surplus.7 Bork has equated consumer welfare to total welfare
while others identify the term to protect consumer surplus.8 El Salvador stated that in
the absence of a formal definition the concept of consumer welfare, in general terms
refers to the value consumers receive from the goods and services they consume –
including price, quality, and consumer choice.9 Thus, in common parlance as believed
by majority of jurisdictions, consumer welfare is considered to be one of the accepted
goals to maximize consumers’ surplus under the antitrust laws of various
jurisdictions.
7 The 10
th Annual Conference of ICN from May 17-20 2011 at Hague, Competition Enforcement and
Consumer Welfare Setting the Agenda, (March 3, 2016, 7:00 AM) available at
http://www.internationalcompetitionnetwork.org/uploads/library/doc857.pdf 8 John Kirkwood & Robert H. Lande, The Chicago School’s Foundation is Flawed: Antitrust Protects
Consumers, Not Efficiency, 89 University of Baltimore Legal Studies Research Paper No. 2009-17,
through competition and a strong demand side through consumers.2 It has been an
accepted proposition that the similarity between these two laws sometimes results in
tension between the policies. Moreover, the major difference arises due to the
difference in achieving the same objective. These interdependencies and differences
need to be recognised in order to give full effect to the implementation and
coordination of the policies. Thus, the present chapter aims at studying and exploring
the links between competition and consumer policies for the purpose of serving
consumer protection.
4.1 Consumer Welfare as a Shared Goal
Generally, the question of the interface between competition and consumer policy
arises due to the shared goal of consumer welfare. The ultimate object of consumer
well-being achievable under both the policies, make them interrelated. The link
between competition and consumer protection was also highlighted by The United
Nations Guidelines for Consumer Protection in the following words “Governments
should encourage fair and effective competition in order to provide consumers with
the greatest range of choice among products and services at the lowest cost.”3 In the
words of Pranab Mukherjee, “Competition is the buzzword now in every walk of life -
in industry, among service providers, among students, job seekers and employers.
Higher productivity, efficient allocation of resources, increased consumer welfare
through lower prices, better quality, wider choices and accelerated economic growth
are the dividends that accrue from greater competition.”4 The importance of
Competition was also highlighted by the judiciary when the Hon’ble Supreme Court
observed, “In a market governed by a free economy where competition is the
buzzword, producers may fix their own price. It is, however, difficult to give effect to
the constitutional obligations of a State and the principles leading to a free economy at
the same time. A level playing field is the key factor for invoking the new economy.
Such a level playing field can be achieved when there are a number of suppliers and
2 Taimi Amunkete, The Link between Competition Policy and Consumer Protection, Namibian
Competition Commission (2013) available at
http://www.nacc.com.na/cms_documents/ebb_competition_and_consumer_protection.pdf 3 Department of Economic and Social Affairs UNCTAD, United Nations Guidelines for Consumer
Protection, New York, United Nations publication, 2003 (April 5, 2016, 7:20 PM)
http://www.un.org/esa/sustdev/publications/consumption_en.pdf. 4 Pranab Mukherjee, Competition, Public Policy and Common Man. Speech presented at the National
Conference of Competition Commission of India, New Delhi (2009) available at
5001021120110122008084118086114029091&EXT=pdf 8 See Kati. J. Cseres, Competition and Consumer Policies: Starting Point for Better Convergence
(Amsterdam Centre for Law & Economics Working Paper Group, Paper No. 2009-06) 9 Jenisha Parikh & Kashmira Majumdar, Competition Law And Consumer Law: Identifying The
Contours In Light Of The Case Of Belaire Owners Association V. Dlf, 5 NUJS L. Rev. 249, 253
(2012). 10
Organisation for Economic Co‐operation and Development (OECD) Roundtable Document 2008,
The Interface between Competition and Consumer Policies (April. 7, 2016, 9:02 PM),
Competition-Commission-of-India.html (Last visited on May 2, 2016) 5 Competition Act, 2002, §7(1).
6 Consumer Protection Act, 1986, §§§ 4, 7 and 9.
Competition Fairness in the
market
Better choices
and lower prices
Benefit to the
Consumers
50
are assigned the enforcement of competition and consumer law.7 The Office of Fair
Trading in the UK has combined its competition and consumer protection group into
one which is called "Markets and Projects". OFT explains their stand by the economic
theory in the literature:
“Our view is that is more effective to look at the demand and supply sides of markets
together. The competition and consumer regimes are complementary to each other.
Empowered and well informed consumers act as a positive stimulus to competition
between businesses. Where consumers are able to make informed decisions,
businesses are more likely to innovate, reduce inefficiencies in production and supply,
and compete in ways which make markets work well for consumers and the wider
economy.”8 Even in France, the enforcement authority, Direction Generale de le
Concurrence, de la Consommation et de la Repression des Fraudes (DGCCRF) deals
with both consumer protection and competition policies for many years. The whole
idea to have a unified body for enforcement exists for the simple reason that both
competition and consumer law aim at achieving the same objective of ‘consumer
welfare’.9
Though countries like US and UK have a single body for adjudication but it has to be
understood that the policy goals of both the laws vary in their nature. While the
former aims at the sustenance of competition in the market and the latter focusses on
the individual relation between the consumer and seller. But unlike other jurisdictions,
in India, there are two separate types of machinery dealing with competition and
consumer cases. This causes a clash in the redressal agencies since both the laws aim
at achieving a similar goal of “protection of consumer interest.” But if these
regulatory models have to work effectively then it becomes imperative to
acknowledge the fact that the purpose of consumer welfare can only be achieved by
employing both the laws together and not in isolation.
7 Thomas Leary, Competition law and Consumer Protection Law: Two Wings of the Same House, 72
Antitrust Law Journal 1147 (2005); See also Simon Priddis, Competition and Consumer law in UK, 21
Antitrust 89 (2006); See also Spencer Weber Waller, In Search of Economic Justice: Considering
Competition and Consumer Protection Law, 36 Loyola University Chicago Law Journal (2005),
available at http://papers.ssrn.com/sol3/papers.cfm?abstract_ id=726512. 8 Office of Fair Trading Annual Plan 2007-2008, p. 6 (May. 2, 2016, 9:00PM) available at
http://www.oft.gov.uk/shared_oft/about_oft/349517/ap08.pdf. 9 Id
51
The Competition Act covers the prohibition or regulation of the three branches in
terms of economics, i.e. Anti-competitive agreements, abuse of dominant position and
combinations. The Competition authorities under the Act which look after these three
branches are-
1. The Competition Commission of India (CCI)
2. The Competition Appellate Tribunal (COMPAT) being the appellate body10
The present chapter aims at understanding the role played by the Competition
authorities when there is a competition concern arising out of injury to the consumer
in a particular case. The distinctiveness in such cases is due to the fact that in such
cases if there was an absence of anti-competitive effects, the remedy for the same
would have lied only to the consumer courts. Thus, it has been witnessed in the
present times that in cases where it was observed that an enterprise indulging in anti-
competitive practices also caused harm to consumer interests, the same were taken up
by the Competition authorities. Thus, the nature and form of such practice suggest a
consumer law remedy but the effect produced by the same on the market resulted in a
competition law scrutiny.11
Hence, the focus of the chapter is primarily on the role
played by the regulatory authorities in giving effect to policy objectives of
competition law for the attainment of ‘consumer welfare’
5.2 Cases Discussing the Aspect of Consumer Interest under
Competition Law
The idea of ‘consumer welfare’ as an important goal of competition law is the first
point for an interface between the laws of competition and consumer. This particular
feature is dependent on the way the policies are framed and how the inquiry into the
cases is conducted respectively. Thus, though both the laws aim at acheiveing a
common objective, the difference lies in the way adopted by the policies of both the
law. This leads to a certain misunderstanding as to the jurisdiction of both the
authorities especially competition which is not permitted to deal with a case in point
10
Competition Act, 2002, § 53A. 11
Jenisha Parikh & Kashmira Majumdar, Competition Law And Consumer Law: Identifying The
Contours In Light Of The Case Of Belaire Owners Association V. Dlf, 5 NUJS L. Rev. 249, 253
(2012).
52
pertaining to consumer interest. But there are some cases where such an issue was
brought before the Competition authorities and they are considered to be the most
celebrated case laws in this regard.
5.2.1 Belaire Owner’s Association v. DLF Limited12
The DLF case is a benchmark in this regard. In this case, the information was filed for
the increase in the floors and apartments which were in violation of building
restriction norms and also for the delay in possession. It was alleged by Belaire
Owner's Association that in spite of delaying the grant in possession by DLF, it had
charged excessive fees and interest for delayed payments made by the buyers. It was
also alleged that the agreement between the buyers and DLF only favoured the latter.
But DLF, in this case, contended that this case would fall outside the scope of the CCI
since the agreement was entered before the CCI was set up and also before the
enactment of Section 4 of the Act.
But this contention was rejected by the CCI and it was held that this Act would apply
and the existing agreements and also the agreements entered prior to the enactment of
Section 4.
The relevant product market, in this case, was decided by considering Gurgaon the
relevant geographic market as it was observed that buying a high-end residential
apartment in Gurgaon was not easily substitutable. Further, for deciding the question
as to the dominance by DLF the CCI held that it does not face sufficient competition
by its rival in the relevant market as it had about 50% of the market share in the year
2009-2010 and also had a strong presence in almost all related real estate sectors. All
these factors indicate that DLF Ltd. was fully capable of operating independently of
competitive forces in the relevant market fulfilling the conditions laid down in
Explanation (a) (i) to Section 4 are satisfied.
CCI, in this case, concluded that DLF had significant advantages over its competitors
in size and resources and held a position of dominance in the relevant market. The
12
Belaire Owner's Association Vs. DLF Limited Haryana Urban Development Authority Department
of Town and Country Planning, State of Haryana, [2011]104 CLA398(CCI)
53
Commission while analysing Apartment Buyers Agreement noted the various clauses
like:
1. Unilateral changes in agreement and supersession of terms by DLF without
any right to the allotees
2. DLF’s right to change the layout plan without the consent of allotees.
3. Discretion of DLF to change inter se areas for different uses like residential,
commercial etc. without even informing allotees.
4. Preferential location charges paid up-front, but when the allotees do not get
the location, he only gets the refund/adjustment of the amount at the time of
the last instalment, that too without any interest.
5. DLF enjoys unilateral right to increase/decrease super area at its sole
discretion without consulting allotees who nevertheless are bound to pay
additional amount or accept reduction in area.
6. Allotees liable to pay external development charges, without there being
disclosed in advance and even if these are enhanced.
7. Allotees have no exit option except when DLF fails to deliver possession
within agreed time, but even in that event he gets his money refunded without
interest only after sale of said apartment by DLF to someone else.
8. DLF’s exit clause gives them full discretion, including abandoning the project,
without any penalty etc.
The competition concern that arose in this particular case was the dominant position
enjoyed by a builder imposed unfair conditions on the buyers which were binding
upon them resulting in a one-sided contractual obligation. In an ideal competitive
scenario whenever an enterprise indulges in practices having anti-competitive effects,
the consumers have the option to switch to another competitor due to available
alternative which would ensure that the builder/ developer would soon face loss of
customers, forcing them to become more consumer-friendly. However, since DLF in
itself was a dominant enterprise in the relevant market the consumers could not
exercise the option of switching to another alternative.
After considering all the facts in totality in the case, CCI concluded that DLF was in
contravention of Section 4 (2) (a) (i) as it imposed unfair conditions on the sale of its
services to consumers and hence asked DLF and its group companies to cease and
54
desist from imposing such conditions, suitably modify unfair conditions by it on the
buyers within 3 months and imposed Rupees Six Hundred and Thirty Crores.
DLF, in this case, had appealed against the order with the COMPAT13
. The COMPAT
upheld the decision by CCI observing that the market share, economic strength and
commercial advantage over competitors, regulatory barriers in the real estate sector
and the dependency of consumers on DLF clearly showed the dominant position held
by DLF in the relevant market.
Currently, an appeal has been filed in the Supreme Court under Section 53T against
the order of COMPAT. But till the time Supreme Court arrives at a decision, the order
by COMPAT stands as precedent in this regard.
The DLF case is considered to be a landmark case as since the decision of this case
there have been many complaints filed at the CCI against numerous property majors.
The cases that have been brought before the CCI against such real estate companies
under Section 4 have been dismissed for two reasons, (a) that they relate to a
consumer dispute and thereby do not fall under the provisions of the Act and (b) that
the companies did not enjoy the position of dominance in the market. While
dismissing one of the cases the CCI, in its order said, “It is quite possible that injustice
has been done to the informant at the hands of the opposite party. However, for any
injustice done by a builder to the consumer, the remedy does not lie under Section 3
or Section 4 of the Competition Act, neither Section 4 should be attracted for each and
every building project, however, big or small, started by an enterprise.”14
But most of
the complaints have been dismissed by CCI due the reason that informants after the
DLF case have started filing cases for their personal interest seeking compensation for
which CCI is not the proper agency for redressal. Thus, DLF case is an epitome in
clarifying the stand of CCI for the protection of consumers as it can be clearly
understood that only the cases concerning competition issues and consumer interests
in the residential real estate market in India can be taken up by CCI.
13
DLF Home Developers Limited Vs. The Competition Commission of India and Ors.,
2016CompLR60(CompAT) 14
Dilasha Seth, Competition commission flooded with complaints against realtors (25 Mar 12 | 12:50
AM) (May 10, 2016, 11:07 PM) available at http://smartinvestor.business-