The competition regime in India has undergone a complete change in the recent years resulting in the introduction of the new legislation, viz.: The Competition Act, 2002.

The Competition Act replaces the Monopolies & the Restrictive Trade Practices Act, 1969 (MRTP). MRTP was the first piece of legislation aimed at regulating free and unfettered trade in India. The MRTP focused on curbing monopolies, and regulating restrictive trade practices and unfair trade practices which hampered competition or were prejudicial to public interest.

The liberalisation policy of 1991 brought about an overall change in the Indian economic scene with changes in the trade policy, de-licensing of industries, privatisation, opening up of the market to foreign investors, etc. It was felt that the MRTP had become obsolete and the need of the hour was to shift focus from curbing monopolies to preventing misuse of dominance and power. Though the MRTP underwent some significant changes at the time, it still was an inadequate law for fostering competition in the market and eliminating anti-competitive practices in national and international trade. Also absent from the MRTP were important trade practices such as cartels, collusion and price fixing, bid rigging, refusal to deal, and predatory pricing.

Competition Act

The Competition Act was enacted in 2003 in line with the international competition regime. It aims at promoting and sustaining competition and ensuring freedom of trade rather than curbing monopolies. The Competition Act has specific provisions dealing with abuse of dominance, cartels, and predatory pricing.

Competition Commission

The objectives of the Competition Act are sought to be achieved through the Competition Commission of India (CCI). CCI is an independent body established under the Act to investigate into alleged anti-competitive practices and eliminate practices having adverse effect on competition. The Act also empowers CCI to take cognisance of anti-competitive behaviour, which originates outside of India but has an appreciable adverse effect on competition in the relevant market in India.

CCI is empowered to investigate into any alleged contravention either on its own, on receipt of information from any person or consumer, or on a reference made by the Government. CCI has the power to levy penalties for contravention of its orders, making of false statements or refusal to furnish material information.

Though the CCI was set up in 2003, the substantive provisions of the said Act relating to anti-competitive agreements and abuse of dominance were made effective only in May 2009.

Anti-competitive Agreements

The Competition Act renders void any agreement with respect to production, supply, distribution, storage, and acquisition or control of goods or services, which causes or is likely to cause an appreciable adverse effect on competition within India.

The Act specifies a number of factors which must be taken into account while determining whether an agreement has an appreciable adverse effect on competition, including whether the agreement creates barriers or forecloses competition by creating impediments to entry, or drives existing competitors out of the market.

At the same time, CCI is also required to examine the possible pro-competitive effects of an agreement i.e., benefits to consumers, improvements in the production or distribution of goods or in provision of services, and the promotion of technical, scientific and economic development by means of production or distribution of goods or provision of services. Thus, a balanced assessment of the beneficial as well as harmful effects on competition is required.

The Act does not use the words horizontal or vertical agreements. However, horizontal agreements that directly or indirectly determine purchase or sales prices; limit or control production, supply, markets, technical development, investment, or the provision of services; share the market or source of production or provision of services by way of allocation of the geographical area of the market, type of goods or services, or number of customers in the market, etc.; and directly or indirectly result in bid rigging or collusive bidding, are presumed to have an appreciable adverse effect on competition. The same strict treatment is also given to cartels.

The Competition Act gives due recognition to intellectual property rights by providing that the prohibition against anti-competitive agreements shall not restrict the right of any person to restrain any infringement of, or to impose reasonable conditions as may be necessary, for protecting any intellectual property rights.

Abuse of Dominant Position

The Competition Act does not condemn or contain a blanket ban on achieving a dominant position as was the case under the MRTP but only prohibits abuse of dominant position which has an appreciable adverse affect on competition.

Under the MRTP, dominant position was defined in terms of market share only, while under the Competition Act, dominant position also implies the ability of an enterprise to (i) operate independently of competitive forces in the relevant market, or (ii) sway consumers, competitors or the relevant market in its favour. The relevant market may be determined with reference to the relevant geographic or the product market or both.

After the relevant market has been determined, the Competition Act identifies a variety of factors that should be considered in determining dominance. While market share remains an important factor under the new law, other factors such as size and resources of the enterprise and the competitors, economic power of the enterprise including commercial advantages over competitors, dependence of consumers, entry barriers, market structure, etc. are also to be considered. In fact, under the Competition Act social commitments and any relative advantage by way of contribution to the economic development are some novel factors that may be considered by CCI in its assessment of dominant position.

The Act enumerates practices which are to be treated as instances of abuse such as, unfair or discriminatory conditions or price, predatory pricing, imposing limits or restrictions on production of goods or provision of services or on the relevant market or denial of market access in any manner. The provisions for abuse of dominance are also applicable to holders of intellectual property rights, provided such rights are considered by CCI to render the holder a dominant player in the relevant market.

If the CCI is satisfied that there has been an abuse of dominance, it can direct the enterprise to desist from practices which constitute such abuse. CCI is empowered to impose a penalty of up to 10 percent of the average turnover of last three preceding financial years. CCI can also direct the division of the enterprise to ensure that the enterprise does not abuse its dominant position.

Merger Control Regulations

The Competition Act also seeks to regulate combinations which may have an adverse effect on competition in India. Combinations include mergers, amalgamations and acquisition of control, shares, voting rights, or assets.

The said provisions are yet to be brought into force but are expected to be notified shortly. Once these provisions are brought into force, it would be mandatory to notify the CCI, when parties of a combination meet certain combined assets or turnover threshold in India or worldwide. The notification requirement will be applicable to any overseas combination if the threshold set out in terms of assets or turnover in India is met, irrespective of the size of the transaction or its impact in India.

The notice is required to be given within 30 days of execution of any agreement or other document for acquisition. The Act provides a long gestation period as a combination cannot take effect until 210 days have passed from the date of notice to the CCI or the date of the order, whichever is earlier. The Government is in the process of framing regulations for the combination provisions and is expected to address the concerns of the industry that the long gestation period under the Act would make M&As in India an extremely long and drawn out process, even killing a deal.

Conclusion

With the enactment of the new law, the competition regime in India has undergone a complete overhaul. Though it is difficult at this early stage to tell how effective or efficient the new legislation would be, it is certainly a sincere attempt to meet the needs of the global business community. CCI has been proactively carrying out the work of competition advocacy since its establishment but now faces a huge challenge and task ahead. It is hoped that the CCI shall be able to overcome any shortcomings in the Act and iron out any difficulties in enforcement. Thus, many developments in this field are expected.

Contact:
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Email: manjula.chawla@phoenixlegal.in