Komal Kaushal, Assistant Student Editor, Nyayshastram.
Introduction
Competition or antitrust law as it is customarily called in the United States was invented neither by technicians of commercial law nor economists themselves. It was rather decided by the politicians and scholars attentive to the pillars of the democratic system [1] who saw it is who saw it as an answer to a crucial problem for democracy, that is, private power vis-a-vis public power. In India, the major concern behind the passing of the then competition law MRTP Act in 1969 was to minimise inequality in income, distribution of ownership, and control of material resources to subserve the common good. Competition law in India is not a new concept to India however, it is different from what was prevailing before the Competition Act, 2002.
Historical Trail
Competition law in India in its first avatar was in the form of the MRTP Act, 1969. The MRTP Act, was enacted on the recommendations of the Monopolies Inquiry Commission. The MRTP Act, was centric towards curbing the monopolistic behaviour of companies. The Act was based on the assumption that size beyond a limit adversely affects competition. In 1978, the Sachar Committee [2] was set up to report and suggest changes necessary in the MRTP Act. The committee recommended the inclusion of provisions related to unfair trade practices for instance misleading advertisements, in order to protect consumers who were vulnerable to such practices prior to the amendment of the act.
The era of the ’80s and ’90s was a crucial one for India, specifically due to the adoption of liberalisation, privatisation, and globalisation of the Indian economy. The new economic policy reduced the role of government and provided an opportunity for MNC’s to invest in India. The economic reforms created new challenges for the application to the MRTP Act, as it was seen as an obstruction to private investment. This led to the amendment of certain provisions of the act. However, such inclusion and deletion wasn’t a permanent fix, and the need for a new competition law could be sensed. The finance minister in his budget speech in 1999 said [3]:
“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.”
For the same, a committee on Competition Policy and Law was established in 1990, known as the Raghavan Committee. The committee was of the view that the MRTP Act was not apt for the new liberalised and globalised era of the Indian economy. Raghavan Committee recommended the enactment of new legislation rather than amending the prevailing act. Based on the recommendations a bill was framed and passed in the form of the Competition Act, 2002.
Overview of the Competition Act in India
The competition law is applicable to any enterprise, carrying on commercial activities except as exempted by the Central Government, under Section 54 of the Act [4]. The territorial jurisdiction of the competition act extends to the whole of India except the state of Jammu and Kashmir. However, the statement gets undermined due to the effects doctrine. According
to the doctrine, the effect of the action or behaviour of an enterprise will determine whether the act becomes anti-competitive and comes within the jurisdiction of the Act. The Competition Commission of India(CCI) has jurisdiction even over foreign enterprises if the tremors of their anti-competitive actions are felt in India.
Salient Features
The Competition Act, 2002 provides for the establishment of the competition commission of India is a quasi-judicial body governed by the principles of rule of law. The three main highlights of the Competition Act are:
1. Anti-Competitive Agreements- Section 3
2. Abuse of Dominant Position- Section 4
3. Combinations- Section 5&6
Anti-competitive agreements: The Competition Act prohibits entering into agreements by enterprises that cause or likely to cause an appreciable adverse effect on competition. The act doesn’t prohibit horizontal agreements absolutely, only the ones specified under section 3(3) [5] are prohibited which are:
1. Price fixing
2. Limiting or controlling the markets
3. Sharing of market and bid-rigging
Competition laws across the globe primarily target horizontal agreements, since they waste society’s resources, create inefficiency and injure consumer welfare. They may have other adverse effects on the economy as well. For instance, they shelter members from full exposure. Market forces, the result of which could be reduced pressure to control costs or innovate.[6] Agreements to fix prices or to allocate territories, the majority of the time have anti-competitive effects. However, not all horizontal agreements are harmful. For instance, where agreements are for sharing risk, making cost savings, pooling know-how and launching
innovations faster.[7]
Section 3 doesn’t apply to agreements entered in respect to various forms of intellectual property rights, including trademarks, patents, copyrights, geographical indications, industrial [8] designs etc. Furthermore, agreements related to production, supply, distribution, or control of goods or services for the purpose of protecting right to export are exempted from being considered as an anti-competitive agreement.
Section 3(3) categorically states the agreements entered between enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise or the practice carried on, or decision was 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 shall be held as an anti-competitive agreement.
Abuse of Dominant Position: the Competition Act also prohibits the abuse of a dominant position. Being in a dominant position is not punishable however, abuse of the same is. The intent of this legislation is not to prevent the existence of monopolies or enterprises from being in a dominant position. A large size of an enterprise is also essential in order to compete with big MNC’s in light of globalisation.[9] This ideology is in fact opposite to the one on which the MRTP Act used to work.
No enterprise or group shall abuse its dominant position. The dominant position has two aspects; The dominant position of enterprise is such that it can operate independently of competitive forces generated by its rivals. This is crucial because healthy competition among competitor promotes the efficiency of production and optimises consumer surplus. Hypothetically, if an enterprise intends to create entry barriers, drive out existing rivals, control output or price, then in such case it causes concern. The second aspect can be understood by an explanation (a)(ii) to section 4 which relates to the ability of an enterprise to affect its competitors or consumers or the relevant market in its favour. For instance, an enterprise may not only have the capacity to operate irrespective of the competitive factors, it can also influence its competitors and consumers or the relevant market. In such a case an enterprise may have the liberty to adopt a price or non-price strategy to overcome downward pressures on its profit from its competitor, or to capture or bind consumer or to create a market environment that would deter newer competition, both in terms of competing enterprises or rival products. [10] Section 4(2) identifies the different practices by a dominant enterprise or group of enterprises as abuse of dominant position.
Combinations: Mergers and acquisitions in the form of combinations are also regulated by the Competition Act. Combinations having an appreciable adverse effect on competition are prohibited. The parties involved in any form of the combination are required to give prior notice to the CCI as per section 5. The CCI may either disapprove or approve with modifications to the proposed combination.
Conclusion
Liberalisation, privatisation and globalisation flooded the Indian economy with foreign investments, something which the MRTP Act was not capable of controlling hence, a new framework of competition law was the need of the hour. Competition Act, 2002 main purpose is to protect and promote competition in the market. Competition is a necessity for an efficient economy as it provides consumers with a wider range of goods and services, high quality, and improved value of money. The 2002 Act seems to maintain a balance between the consumer welfare standard and efficiency standard.
The Competition Act, 2002 is a big leap for India’s competition law framework from the MRTP regime which was centric towards curbing monopolies to promote competition in India in the market by prescribing practices that will have an appreciable adverse effect on competition. The CCI has to be cautious and consistent with respect to its approach with respect to its operations and advocacy exercise. A consistency in CCI’s approach will corroborate in boosting pro-competitive business strategy within the framework of the Act.
[1] Versha Vahini, Indian Competition Law 15 (LexisNexis 2016).
[2] Parthapratim Das, Development of Competition Law in India, ipleaders, (Feb. 16, 2021, 6:00 PM), https://blog.ipleaders.in/competition-law-india/
[3] Minali Pathak, Evolution and Development of Competition Law in India, ipleaders, (Feb. 16, 2021, 7:00 PM), https://blog.ipleaders.in/competition-law-evolution/
[4] The Competition Act, 2002, No. 12, Acts of Parliament, 2002 (India).
[5] Ibid.
[6]6 OECD, report on the nature and impact of Hardcore Cartels and Sanctions Against Cartels under National Laws at 6(2002). Available at http://www.oecd.org/daf/competition/cartels/2081831.pdf
[7] European Commission, “Guidelines on horizontal cooperation agreements”, OJ[2001] c 3/2 : [2001] 4 CMLR 819. Available at http;//Europa.eu/scadplus/leg/en/lvb/l26062.htm
[8] The Competition Act,2002, § 3(5), No. 12, Acts of Parliament, 2002 (India)
[9] Vahini, supra note 1, at 22.
[10] Belaire owner’s limited v.DLF Ltd., [2011] 104 CL A398 (CCI)
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