THE COMPETITION ACT, 2002

CONTENTS
1. Developments leading to MRTP 2. RTP,UTP and MTP 3. Developments leading to The Competition Act 4. Anti-competitive Agreements & Abuse of Dominance 5. Combinations & Competition Advocacy 6. CCI 7. Differences & Sec 66 (Feroze) (Vibhav) (Tarun) (Harsh) (Jigyasa) (Aayush) (Visha)

RECENT HAPPENINGS
NSE abused its dominant position Times of India 29/11/10 Kingfisher fined 1Crore Strategic alliance with Jet Airways Economic Times 22/11/10 Probe into the games village deal Economic Times 07/10/10

INDIA : POST INDEPENDENCE

 Industrial Policy Resolution 1948  1956 Revolution  Industrialization subject to government intervention and regulation  Limited licenses in core sectors  No free entry or exit  High tariffs, restrictions on FDI  Government determined plant sizes, locations, prices

CONCENTRATION OF ECONOMIC POWERS

Licensing policy favored business houses  Large amount of capital  Managerial skills  Proved competence  Ability to secure foreign collaboration Emergence of monopolistic industries Indulgence in Restrictive Trade Policies Detrimental to consumer and economy

ENQUIRIES / STUDIES
Hazari Committee - 1965  Studied Industrial Licensing Procedure  Working of licensing committee lead to disproportionate growth Mahalobonis Committee 1960  Studied distribution and levels of income  Top 10% earned 40% of income Monopolies Inquiry Commission 1964  Enquired extent and effects of concentration of economic power  Product wise and industry wise concentration

MONOPOLIES AND RESTRICTIVE TRADE PRACTICES ACT, 1969

For safeguarding the rights of consumers, the Government passed the MRTP bill and this act came into existence MRTP commission has the power to stop all businesses that create barrier for the scope of competition in Indian economy It aims at preventing economic power concentration in order to avoid damage It also provides for probation of monopolistic, unfair and restrictive trade practices

UNDERSTANDING THE MRTP

It regulates growth, doesnt prohibit it Controls growth only when it is detrimental to common good Curbs practices which adversely affect consumer interest Seeks to protect and support public by reducing, if not eliminating monopolistic, restrictive and unfair trade practices

MONOPOLISTIC TRADE PRACTICES

Maintaining prices at unreasonable levels by limiting, reducing or controlling the production, supply or distribution of goods Preventing or lessening competition for goods or in the provision of maintenance of any services by adoption of unfair methods or unfair or deceptive practices Limiting technical development or capital investment to the common detriment and letting quality of goods and services to deteriorate

Increasing unreasonably
 The cost of production of goods  Charges for the provision or maintainence of any services  The prices at which the goods are sold or may be sold or re-sold

 The prices at which the services are or may be provided  The profits which are or may be derived by the production, supply or distribution of any goods

UNFAIR TRADE PRACTICES

The 1984 amendment to the act brought Unfair trade Practices within its ambit. False representation and misleading advertisement of goods and services Falsely representing second-hand goods as new False claims or representation regarding price Bargain sales, bait and switch selling Hoarding or destruction of goods

 Offering of gifts and prizes without an intention of providing them and conducting promotional contests Giving false facts regarding sponsorship, affiliation etc. of goods and services Giving false guarantee or warranty on goods and services without adequate tests Product safety standards

RESTRICTIVE TRADE PRACTICES

It is a practice which has the effect of preventing, distorting or restricting competition It is a practice which tends to obstruct the flow of capital or resources into the stream of production

The aim of restrictive practices is to raise prices and restrict output to the benefit of the companies practicing them.

RTPS LISTED UNDER MRTP

Refusal to deal Tie up sales Full line forcing Exclusive dealings Concerted practice Price discrimination Re-sale price maintenance Area restriction Discriminatory pricing

EXCEPTIONS TO MRTP
Any undertaking owned or controlled by the Government or a corporation established by or under any Central, Provincial or State Act Any trade union or other association of workmen or employees formed for their own reasonable protection Any undertaking owned by a co-operative society formed and registered under any Central, Provincial or state Act Any Public financial institution

POST 1991
1991 Liberalisation, Privatisation and Globalisation Drastic changes in policies To drive market by competitive forces Licensing requirement was confined Shift of focus from curbing monopolies to promoting competition De-regulation of industry and trade

CRITICISM of MRTP
Hindustan Lever Limited TOMCO merger case After the 1991 amendment, MRTP didnt empower the government to pre-empt a merger, since it affected competition Competition Act gives ex ante power to the CCI to block certain combinations, if found to be adverse to competition Limited power of Commission to direct division of undertakings Wordings of the law were considered inadequate

 MRTP required state approval for setting up new undertakings, expansion of existing undertakings Inadequate budget of the MRTP commission  0.0009 % of GDP  Very less compared to other countries  Sanction is required from Government Cases brought before it took a lot of time MRTPC followed the procedures outlined in the Code of Civil Procedure,1908

PROCEDURES
 Receipt of complaint  Reply from respondent  Rejoinder from complainant  Framing of issues  Evidence through interrogations  Discovery of documents  Oral evidence of witnesses  Arguments by advocates  Final Judgment

AMEND MRTP OR ENACT NEW LAW ?

One generic provision may cover all anti-competition practices by the definition of RTP Absence of specification of identifiable anti-competition practices such as cartels, predatory pricing & bid rigging Such offences were fitted by way of interpretation of language used therein Sea change in the economic and trade environment Amendments would have entailed cumbersome, innumerable changes

RAGHAVAN COMMITTEE
Consisted of experienced people from varied backgrounds Features of competition laws of 80 countries were studied Need for new competition act was established Presented report in May, 2000 and recommended  Voluntary notification of combinations  Calibrated introduction of provisions of Act Competition law was presented in November 2000 and after some modifications, was finally passed in December 2002

COMPETITION ACT, 2002

The Government passed a bill in 2001 and the Competition Act was introduced and passed in December 2002. Objectives     To prevent practices having adverse effect on competition To promote and sustain competition in market To protect the interest of consumers at large To ensure freedom of trade carried on by other participants in markets in India

COMPETITION ACT MAIN FEATURES

I. Prohibits Anti-competitive Agreements (Section 3)

II. Prohibits abuse of Dominant Position (Section 4) III. Provides for Regulation of Combinations (Section 5,6) IV. Enjoins Competition Advocacy (Section 49)

PROHIBITS ANTI-COMPETITIVE AGREEMENTS

  2 types of Agreements Horizontal Vertical Horizontal Agreement Amongst competitors Cartel formation(eg:- De Beers Diamond Co., OPEC)  Price fixing  Sharing of market,  Limiting production/supply,  Bid rigging,  Collusive bidding.

VERTICAL AGREEMENTS
 Between Buyer and Seller.  Between persons in different stages of production chain in different markets.  Few Vertical Agreements are: Tie-in arrangement, Exclusive supply/distribution agreement, Refusal to deal Resale price maintenance.

SEC 3 OF THE ACT SAYS THAT

No enterprise or person should enter into a contract which causes adverse effect to competition. Any agreement entered into in contraventions of provisions will be void. Horizontal Agreements cause adverse effects to competition, hence per se illegal. Vertical Agreements-subject to Rule of Reason(Burden of proof lies with prosecutor).

ABUSE OF DOMINANCE(SECTION 4)
Dominant Position defined in the Act in terms of the position of strength, enjoyed by an enterprise, in the relevant market, in India, which enables it to (i) operate independently of competitive forces prevailing in the relevant market; or (ii) affect its competitors or consumers or the relevant market, in its favor.

ABUSE OF DOMINANT POSITION:

Unfair or discriminatory pricing(including predatory pricing) Limiting production or technical development. Denial of Market Access. Conclusion of contracts subject to supplementary obligations. Use of dominant position in one market to enter into or protect the other market.

 Important points to note:  Situation of Monopoly per se is not against public policy  The use of monopoly status that is detrimental to competitors(potential and actual) is prohibited.  The Act targets abuse of dominance and not dominance per se.  A welcome step, towards a truly global and liberal economy.

COMBINATION [SECTION 5]
y Under the MRTP act, combinations were regulated by Central Government before 1991. y Combination is a broad term: includes Mergers, Amalgamation, joint ventures, Acquisition of shares, Acquiring of control y The Competition Act does not ban combinations. The Combinations which cause or are likely to cause an appreciable adverse effect on competition within the relevant market in India shall be void. y Act regulates if assets and turnover exceed specified monetary limits.

THRESHOLD LIMITS [SECTION 5]

In India For the Parties Assets Rs 1000Cr or Turnover Rs 3000Cr For the Group Assets Rs 4000Cr Or Turnover Rs12000Cr Involving foreign enterprise In India Worldwide* ($) ($) Assets Assets USD 500 m Or Turnover USD1500m USD 2 b or Turnover USD 6 b;

CHANGES IN ACT
Provision
MERGER NOTIFICATION MANDATORY

Earlier

Now

Prior intimation of any Intimation combination amongst cos, was optional group or persons, to be made & that also after the within 30 days to CCI combination. The time to However intimation only if it be taken above a particular threshold. was also open-ended

REGULATION OF COMBINATION [SEC 6]

Mandatory pre-merger notification introduced with Competition Amendment Act of 2007 Commission to decide in 90 days from the date of notice, else combination is deemed approved. [Section 6] Commission can take suo moto action within 1 year after combination [ Section 20] Penalties : Penalty for non-furnishing of Notice u/s 6-mandatory fine up to 1% of total turnover or assets, whichever is higher u/s 43A Penalty for furnishing false informations or omission to furnish material information u/s 6- Minimum fine of Rs. 50 lakhs-u/s 44

CONCERNS
Mandatory notification Too long waiting period 90 days. Conglomerate acquisitions or acquisition of assets by parties not in the same line of business should benefit from the less number of days review procedure as they are not likely to have an appreciable adverse effect on competition within the relevant market in India

MERGER NOTIFICATIONS AND REVIEW IN OTHER COUNTRIES

SR. NO. 1. 2. 3. 4. 5. COUNTRY United States United Kingdom Australia China Germany NOTIFICATION INITIAL REVIEW Mandatory Voluntary Voluntary Mandatory Voluntary 30 days 25 days 14 days 30 days 30 days DETAILED REVIEW 30 days 90 days 90 days 90 days Max. 4 months (If required) 30 days 90 days 60 days

6. 7. 8.

Netherlands Portugal Spain

Mandatory Mandatory Mandatory

30 days 30 days

CONCERNS
y Biased against Indian Cos. e.g. an Indian Co. with turnover of Rs. 3000 crore cannot acquire another Co. without prior notification and approval of CCI, whereas a Foreign Co. with turnover outside India of more than $ 1.5 billion (or Rs. 4500 crore) may acquire an Indian Co. with sales just short of Rs. 1500 crores without any notification y Regulatory Overlap : A regulatory overlap in the Banking, Insurance and Telecom as presently regulated by RBI, IRDA and TRAI. y Salami Styled acquisitions by Foreign acquirer who structures the transactions in parts so that each part is acquired separately in a way that acquisition of each part falls below the thresholds.

CASE STUDY

 The merger between Jet-Airways and Kingfisher Airlines, the two largest domestic airlines in India.  Justifications given for the merger were :  Merger gives rise to reduction in marginal costs to both the firms.  The merged airline could effectively compete with foreign carriers in the international market  HELD : Merger would be anti-competitive : Combined premerger market share of 60 %.

COMPETITION ADVOCACY [SECTION 49]

The Competition Commission shall take suitable measures to:  Promote competition advocacy  Create public awareness  Impart training about competition issues Held Advocacy seminars for Professional Institutes (ICAI, ICWAI, ICSI) and Industry (2005). The commission shall render opinion to State or Central Government on issues or policies relating to competition ; not binding

SOME OTHER FEATURES OF THE ACT:

 EXTRA TERRITORIAL REACH Arm extends beyond the geographical contours of India to deal with practices and actions outside India. CCI has the power to inquire into an agreement/abuse of dominance/combination has taken outside India. Based on effects doctrine- if any action or practice is outside the shores of the country but has an adverse effect on competition in India, can be brought within the ambit of the Act.

COMPETITION ACT AND IPR

Section 3(5) of the Competition Act, 2002 excludes all IPRs from its applicability Intellectual Property Right carries with it a bundle of rights in the interest of creativity and innovation Any condition or obligation outside the bundle of rights cannot be countenanced if it trenches competition The act has therefore brought under its surveillance unreasonable practices that may accompany the exploitation of IPRs

COMPETITION COMMISSION OF INDIA(CCI)

In accordance with the provisions of Amendment Act 2007, CCI and CAT established. CCI- an expert body with functions of a market regulator. Prevents and regulates anti-competitive practices in the country in accordance with the Act. Also has advisory and advocacy functions.

COMPOSITION OF CCI
Chairperson Members( Not less than 2 and not more than 6) Should be persons of integrity, ability and standing. Professional experience of at least 15 years. Whole time members Term- 5 years, could be reappointed Selected by a collegium Could be removed by Central Govt

DUTIES, POWERS AND FUNCTIONS OF CCI Duties

1. To eliminate practices having adverse effects on competition. 2. Promote and sustain competition 3. Protect the interests of consumers 4. Ensure freedom of trade carried on by other participants, in Indian markets.

POWERS
1. Cease and desist order. 2. Penalty upto 10% of average turnover of last 3 preceding financial years. 3. In case of Cartels, penalty upto 10% of turnover or 3 times of cartelised profit. 4. Order can modify any agreement. 5. In case of Combination- can be approved, approved with modification or refused approval. 6. In case of Dominant Enterprise- order for division of dominant enterprise.

PROCEDURE FOR INQUIRY ON COMPLAINTS

 In case of Abuse of Dominance/Anti-competitive Agreement No prima facie, dismiss the complaint. Prima Facie exists, direct the Direct General to make and investigation into alleged matter. Direct General will submit a report to the CCI If report recommends no contravention, then complainant is given a chance to rebut. If report recommends contravention, then it imposes penalties, awards compensation, directs modification of agreement, recommend Central Govt to divide such dominant enterprises.

PROCEDURE FOR INQUIRY ON COMPLAINTS

 In case of Investigation into Combination Shall issue a show cause notice asking parties to respond within 30 days as to why no action should be taken. If commission is prima facie of opinion that there is adverse effect, then within 7 days of receipt of response, ask parties to publish communication of combination within 10 weeks. May also invite written objections within 15 days of publishing of Combination information. Can approve/disapprove/modify the combination

PENALTIES
Contravention of orders of Commission- detention in civil prison for 1 year Failure to comply with directions of Commission- 1 lakh for each day of failure For making false statements or omission to furnish material information- 50 lakhs to 1 crore

COMPETITION FUND CONSTITUTION

Fund is credited with Govt grants , costs and fees received, interest accrued. Fund is used to meet expenses of the Commission.

COMPETITION APPELLATE TRIBUNAL

A Quasi-Judicial body consisting of 3 members. Headed by a person either judge of the Supreme Court or Chief Justice of a High Court. No more than 2 other members Selection by a Collegium.

FUNCTIONS OF CAT
Hear and dispose of appeals against direction issued or decision made or order passed by the Commission. Will adjudicate on claims for compensation Orders of CAT shall be implemented as a decree of a civil court Filing appeal against orders of the CAT shall be to the Supreme Court

MRTP ACT,1969
1 Based on the pre-reforms scenario 2 Based on size as a factor 3 Competition offences implicit and not defined 4 Complex in arrangement and language. 5 14 per se offences negating principles of natural justice 6 Frowns upon dominance 7 Registration of agreements compulsory 8 No combinations regulation

COMPETITION ACT,2002
Based on the post-reforms scenario Based on structure as a factor Competition offences explicit and defined. Simple in arrangement and language 4 per se offences and all the rest subjected to Rule of reason. Frowns upon abuse of dominance No requirement of registration of agreements Combinations regulated beyond a high threshold limit.

MRTP ACT,1969
9 Competition Commission appointed by the Govt 10 Very little administrative and financial autonomy for CC 11 No competition advocacy role for CC. 12 No penalties for offences 13 Reactive and rigid 14 Unfair trade practices covered 15 Does not vest MRTP Commission. inquire into cartels of foreign origin in a direct manner

COMPETITION ACT,2002
Competition Commission selected by a Collegium Relatively more autonomy for CC. Competition Commission has advisory roles. Penalties for offence Proactive and flexible Unfair trade practices omitted (consumer fora will deal with them) Competition Law seeks to regulate them.

REPEAL OF MRTP ACT

The Act had become redundant post July 1991 The Ministry of Corporate Affairs had issued a Notification dated 28th August 2009, whereby the MRTP Act stands repealed and is replaced by the Competition Act, 2002, with effect from September 1, 2009 Section 66 of the Competition Act provides the transitional provisions from the MRTP Act to the Competition Act

TRANSITIONAL PROVISIONS (SECTION 66)

MRTP Commission
The MRTP Commission will continue to exercise jurisdiction and power under the repealed MRTP Act in respect of any case or proceeding filed before 1 September 2009, for a period of two years. It will not, however entertain any new case arising under the MRTP Act on or after 1 September 2009 Upon the expiry of the specified two year period, the MRTP Commission shall stand dissolved

TRANSFER OF PENDING CASES

Cases pertaining to monopolistic or restrictive trade practices shall stand transferred to the CAT, which shall adjudicate such cases in accordance with the provisions of the MRTP Act Cases relating solely to unfair trade practices shall stand transferred to the National Commission as constituted under the Consumer Protection Act, 1986, which may in turn transfer such cases to a State Commission constituted under the said Act Cases relating to giving false or misleading facts disparaging the goods, services or trade of another person under the MRTP Act shall be transferred to the CAT which will be dealt in accordance with the provisions of MRTP Act.

INVESTIGATIONS/PROCEEDINGS
With effect from 1 September 2009, all pending investigations and proceedings by the Director General relating to Monopolistic/Restrictive trade practices have been transferred to the CCI Unfair trade practices have been transferred to the National Commission under the Consumer Protection Act 1986 Cases giving false or misleading facts disparaging the goods, services or trade of another person have been transferred to the CCI.

REFERENCES
Why India adopted a new competition law Dr. S. Chakravarthy The Gazette of India Ministry of Law and Defence www.legalservicesofindia.com www.taxguru.in