Competition Law and Policy in India

Introduction

World Bank defines competition as ‘a situation in a market in which firms or sellers independently strive for buyers’ patronage in order to achieve a particular business objective, for example profit sales or market share’. Competition introduces greater market efficiency in an economy by encouraging innovation, technical development, lower price and better quality of products and services for the consumers. However, market can suffer from failures and distortions, and players may indulge in anti-competitive activities such as cartels and abuse of dominance, resulting in adverse impact on economic efficiency and social welfare. Hence, there is need for competition law and policy, and an authority to enforce it.

In the US and Canada, competition law and policy have been in existence since 1890s. However, in India, they are relatively new concepts. Competition law is based on the fundamental premise that market forces and their contracts need to be organized in a competitive manner. Thus, Competition Law and authorities intervene whenever commercial contracts are found to be ‘restrictive’ in nature.

The Government of India has regarded ‘competition’ a serious policy issue. Following are some of the relevant excerpts from the President’s Address to the Parliament on 7th June, 2004:

“Competition, both domestic and external, will be deepened across industry…”

“…government will devolve full managerial and commercial autonomy to successful, profit-making companies operating in a competitive environment”.

“…government believes that privatisation should increase competition, not decrease it”

The major objectives of the reforms in policies undertaken by the Government of India in the recent years have been to promote sustained high level of economic growth, enhance productivity and attain international competitiveness and generate employment opportunities. Now there is an increased recognition that market forces should play an important role in helping achieve these objectives. However, increased role of market players may lead to adoption of unfair means, ultimately resulting in market failure. Distortions in the market may also arise from the policies and practices of the government, and their implementation. The preponderance of market-distortion causing practices, market failures and government-induced anti-competitive outcomes necessitates the need for appropriate measures to ensure competitive outcomes. These measures come under the umbrella of ‘Competition Policy’, which seeks to check impediments to proper functioning of markets.

The foundation of the competition policy in India is laid on the Articles 38 and 39 of the Constitution of India, which come under the Directive Principles of State Policy. These articles direct that the State shall channel its policies towards securing (a) “that the ownership and control of material resources of the community are so distributed as best to subserve the common good” and (b) “that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment”.

Competition Law versus Competition Policy

Competition law and competition policy are distinct concepts. Competition law is a subset of competition policy. Competition policy essentially entails:

Competition law prohibiting anti-competitive conduct by businesses

Sectoral regulatory laws to check situations where market fails

Government policies such as liberalised trade policy, relaxed foreign investment and ownership requirements and regulatory reforms that enhance competition in local and national markets

All Government Policies that affect the functioning of markets

Competition Law

Trade Policy

Industrial Policy

Disinvestment Policy

FDI Policy

Fiscal Policy

IPR Policy

Labour Policy

Others

The ‘Nine Principles’ of competition policy are:

Foster competitive neutrality between public and private sector enterprises

Ensure access to essential facilities

Facilitate easy movement of goods, services and capital

Separate policy-making, regulation and operation functions

Ensure free and fair market process

Balance competition and intellectual property rights (IPRs)

Ensure transparent, predictable and participatory regulatory environment

Notify and publicly justify deviation from competition principles

Respect for international obligations

Competition law is a means to implement competition policy and prevent anti-competitive practices by firms and unnecessary government interventions.

Indian competitive legislation

Monopolies and Restrictive Trade Practices (MRTP) Act, 1969

In 1964, the Government of India appointed the Monopolies Inquiry Commission to inquire the prevalence of monopolistic and restrictive trade practices in certain sectors. On submission of the report by the Commission, the Monopolies and Restrictive Trade Practices (MRTP) Bill was passed by the parliament. This Bill came into force on June 1, 1970 as the MRTP Act, 1969. Since 1970, the Act had been amended several times to meet the changing circumstances.

The MRTP Act sought to achieve following principle objectives:

Prevention of concentration of economic power to the common detriment

Control of monopolies

Prohibition of monopolistic trade practices, and

Prohibition of restrictive trade practices

In late 1990s, on account of international economic developments relating particularly to competition laws, it was realised that there was a need to shift focus from curbing monopolies to promoting competition.

The Competition Act, 2002

On January 13, 2003, the Competition Act, 2002 received assent of the President of India pursuant to Raghavan Committee’s Report. Composed of 66 sections, the Competition Act is procedure-intensive. The Government of India established the statutory body called Competition Commission of India to enforce the Act and give directions to it. Apart from its approach towards monopoly, the Competition Act differs from the MRTP Act in following ways:

MRTP Act

Competition Act

1

Based on the pre-reforms scenario

Based on the post-reforms scenario

2

Based on size as a factor

Based on structure as a factor

3

Competition offences implicit or not defined

Competition offences explicit

4

Complex in arrangement and language

Simple and easily comprehensible

5

14 offences negating the principles of natural justice

Only 4 offences and all the rest subjected to rule of reason

6

Targets dominance

Targets abuse of dominance

7

Registration of agreement compulsory

No such requirement

8

No combinations’ regulation

Regulated beyond a threshold

9

Competition Commission (CC) appointed by the Government

Competition Commission selected by a Collegium

10

Very little autonomy for the CC

Relatively more autonomy for the CC

11

No competition advocacy role for the CC

CC has competition advocacy role

12

No penalties for offences

Penalties for offences

13

Reactive and rigid

Proactive and flexible

14

Unfair trade practices covered

Unfair trade practices omitted

15

Does not vest MRTP to enquire into cartels of foreign origin explicitly

Competition law seeks to regulate them

16

Concept of ‘Group Act’ had wider import and was unworkable

Concept has been simplified

The Competition (Amendment) Bill, 2006

The Competition (Amendment) Bill, 2006 was passed to address the concerns of the Supreme Court. It also proposed changes to the Competitions Act in sections dealing with anti-competitive practices. Some of the highlights of the Bill include:

Some amendments such as modified leniency programme for firms that provide information about their participation in a cartel are inadequately thought out.

The amendments proposed to placate the Supreme Court may have some negative ramifications.

The lack of expertise required to interpret the varied technical clauses of the Act remains a concern.

Following are the key elements of the Competition Act:

Anti-Competitive Agreements

The law prohibiting anti-competitive agreements is dealt with in section 3 of the Act. It states that “enterprises, persons or associations of enterprises or persons, including cartels, shall not enter into agreements in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which cause or are likely to cause an appreciable adverse effect on competition (AAEC) in India”.

Abuse of Dominance

The Section 4 of the Act deals with the abusive behaviour by dominant firms. It defines dominant position as a ‘position of strength’ enjoyed by a player in the relevant market in India. The Act has laid down the factors to be taken into account to while considering relevant product and geographic market of any good or service. However, unlike the MRTP Act, no mathematical/ statistical formula is adopted to measure dominance.

Combinations Regulation (Merger and Amalgamation)

Merger law is dealt with in sections 5 and 6 of the Act. It defines “Combinations” as mergers, amalgamations, acquisition of shares and acquisitions of control, beyond specified size thresholds. The Act states that combinations that exceed the specified threshold limits in terms of assets or turnover may cause an appreciable adverse impact on competition within the relevant market in India, and hence, can be scrutinized by the CCI.

Competition Advocacy

Competition advocacy activities are non-enforcement activities which are geared towards cultivating a competition culture and achieving competition neutrality throughout an economy mainly through its relationships with other governmental entities by increasing public awareness of the benefits of competition.hinger2010-08-18T02:47:00

Added this part. This is also included in Competition Act. Correct me if I am wrong.

@Nishant, Please change the language. This is directly copied.

Remedies under Act

The CCI may undertake following remedies:

Impose penalties:

Up to 10% of the average turnover during the preceding three years in case of an anti-competitive practice or abuse of dominance

Up to three times the illegal profits if this is more than 10% of the turnover in case of a cartel

Order the break up of a dominant firm

Provide temporary injunctions during an enquiry

Non-compliance with the CCI’s orders for the first time leads to imposition of monetary penalties. If non-compliance continues or the person does not pay the penalties, it is treated as criminal offence, and may be punishable with imprisonment of up to 3 years.

Anyone can appeal to the Competition Appellate Tribunal (CAT) against the decision of the CCI. The CAT also adjudicates claims on compensation and passes orders for the recovery of compensation. Complaints against the CAT have to be made directly to the Supreme Court.

Indian Competition Law versus Chinese Competition Law

Points of Similarity

Like the Indian Competition Law, the Chinese Law deals with the three main aspects of competition – Anti-Competitive Agreements, Abuse of Dominance and Combinations Regulation.

Both Indian and Chinese laws only establish a general framework. Many specific issues such as merger notification thresholds and exact meaning of some key terms such as “control” and “decisive influence” have not been dealt with.

Points of Difference

The Chinese Competition Law has established a two tier enforcement regime which includes (i) the Anti-monopoly Commission, which acts as a steering committee to formulate competition guidelines and (ii) the Anti-Monopoly Enforcement Authority, which conducts investigations. It does not have provision for a competition tribunal. The Anti-monopoly Enforcement Authority is trusted with both the advisory and adjudicatory powers.

The Chinese law targets a special type of monopolistic conduct – administrative monopoly. This is a distinctive feature of the communist regime in China.

The Chinese law distinguishes between agreements entered into within China and outside China.

The Indian Competition Law assumes that anti-competitive behaviour exists only in case of horizontal restrictions.

Restrictive Trade Practices

As mentioned in the previous section, the MRTP Act refers to ‘restrictive trade practices’ as one of its key objectives. With the Competition Act replacing the MRTP Act, features like concentration of economic power and monopolies were de-emphasized. However, restrictive trade practices still exist, albeit in different manifestations, in the Competition Act.

Restrictive Trade Practice is defined [1] as a practice which has, or may have, the effect of preventing, distorting or restricting competition in any manner. To maximize profits and market power, traders often attempt to indulge in certain trade practices which: It is mainly applicable ad scenarios:

tends to obstruct the flow of capital or resources into the stream of production

tends to bring about manipulation of prices, or conditions of delivery, or

affect the flow of supplies in the market relating to goods or services in such manner as to impose on the consumer unjustified costs or restrictions

Section 33 of the MRTP Act deals with trade practices deemed restrictive. Agreements falling within the scope of Section 33 are required to be registered in accordance with the provisions of the Act. Trade practices falling under Section 33 are per se restricted and need not be tested. Other trade practices may however be examined for restrictiveness. The common types of restrictive trade practices:

Refusal to deal

Tie-up Sales

Full Line Forcing

Exclusive Dealings

Concerted Practice

Resale Price Maintenance

Area Restriction

In the following section, the report will focus on these RTP’s and discuss them in detail by enumerating the law, assessing its implication and scope and substantiating it through examples of legal cases, wherever possible. Usage of cases deepens the understanding of the law and hence lays a strong for understanding their implications in the further sections.

Refusal to Deal

The law states that “Any agreement which restricts, or is likely to restrict, by any method the persons or the classes of persons to whom goods are sold or from whom goods are bought” [2] . This means that refusal to buy or sell by a mutual agreement with an intention to restrict competition is illegal. However, the law does not give the authority any power to compel the business to decide for them whom to deal with and whom not to. The trader has the freedom to exercise his independent discretion in deciding whom he will have his dealings with. He has the right to state openly if he does not want to deal with a particular party. But if the refusal to deal is thought of as an attempt to restrict competition, such an agreement is deemed illegal.

Tie-up Sales

The law states that “Any agreement requiring a purchaser of goods, as a condition of such purchase, to purchase some other goods”. One of the key requirements of competition is that each customer should be able to get the desired product/service at a competitive price and there should not be any arbitrariness. By this requirement, if the purchaser is compelled to buy some other goods of the seller along with the goods he/she intends to purchase in the normal course; then it restricts competition.

Legal Case [3] : Mathrubhumi is a leading newspaper in Kerala. It charged its clients a combined rate for both editions of the newspaper i.e. the client had to pay the same amount irrespective of whether he wanted his advertisement to be published in one edition of the newspaper and not the others. The allegation was made that of ‘tying-up’. The complaint was rejected by the Commission on the grounds that the whole basis of anti-competitive effect in respect of a tying agreement is that there is existence of market control of the tying device. In the context of this case, in order to show the anti-competitive effect, it would be necessary to say something about the competitive situation in the tied product.

Full-Line Forcing

The law states that “Any 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 or any other person”. This is an extreme form of tie-up arrangement whereby the buyer is forced by the seller to buy additional products of the seller. For example, if the wholesaler is forced to buy specified quantities of the product and if the stockist is compelled to buy full range of the same product, it would be a restrictive trade practice. However, fixing a minimum guarantee of sales is not restrictive [4] . The minimum guarantee of sales is an incentive to sale and in the absence of any other ground is not per se, restrictive.

Exclusive Dealings

This type of restrictive practice is one of the most common. The law states that “Any agreement to purchase or sell goods or to tender for the sale or purchase of goods only at prices or on terms or conditions agreed upon between the sellers and purchasers”. These kinds of deals are generally entered into by allocating a particular area to a distributor or a retailer for marketing the product and no other retailer or distributor will receive supplies in that given area. If the manufacturer of the product himself owns the sales counters, then it is called as exclusive dealing due to vertical integration [5] . If the outlets are independent, then this practice is illegal if the outlets are not registered and this practice is not approved [6] . This is treated as a restrictive trade practice because any player willing to enter this industry will not be able to do so because such exclusive dealings create a barrier to entry. An example would be McDonald selling only Coca Cola in its outlets, only AT&T networks being available on iPhones (in US), etc. We

Legal Case: The basic premise of this law is that exclusive dealings restrict competition. However, in the case of Telco [7] , it was held by the Supreme Court, that exclusive dealership did not always restrict competition; in fact it promoted it in this case. Because of acute scarcity of Telco’s commercial vehicles and exclusive dealership arrangements with the dealers equipped them to give prompt and efficient service to the buyers. There have been several cases which have time and again questioned the applicability of exclusive dealings. The list below compiles the judgements related to exclusive dealings cases [8] which may be used in the next portion of the report:

Exclusive dealing agreement preventing flow of knowhow into India from a foreign collaborator and preventing the Indian company from setting up competitive units

Exclusive dealings by a wholesaler with another wholesaler, do not distort, or affect competition

Agreements for exclusive dealings, even if restrictive, but if not in practice against public interest held, valid.

Exclusive dealings were upheld in the case of specialized services e.g. need for genuine and specialized spare parts

Concerted Practice

The law states that “Any agreement to grant or allow concessions or benefits, including allowances, discount, rebates or credit in connection with, or by reason of, dealings”. This includes two parts – collective agreements and concessions and benefits given.

Collective agreements are entered into by two or more people with the intention of cheating, deceiving, misleading or defrauding others of their legal rights. It is kind of a cartel between suppliers and manufacturers which intends to disrupt competition either by fixing price or bid rigging. Price fixing involves fixing prices and sales conditions, maintaining price or adopt same methods to determine the price, determine supply of goods to the market, area-wise or quantity-wise. Bid rigging is a form of price fixing in which a commercial contract is promised to a party even though for the sake of appearance, several other parties present a bid [9] . Given the secretive nature of such contracts, it is often difficult to provide documentary proof to prove these. The commission realized this drawback and it held that a documentary proof was not required to prove the existence of a concert; it is enough if the concert can be inferred from the conduct of the parties or circumstances [10] .

In the case of concessions or benefits given, any discrimination made by suppliers/manufacturers between buyers with respect to prices, rebates, concessions, bonuses, etc is included. However, all concessions are not included. Only those that are given independent of any particular sale or transaction fall under this clause.

Legal Case [11] : In 1983, the Indian Film Producers’ Council sent a circular to all its members advising them that they should retain the distribution of video cassettes and give it to the distributors across the country. It also warned them that any member violating this circular would be expelled from the council. The commission ruled against the council and held that this would restrict competition between the motion picture and video cassette industries and the public will have no option but to go to the cinema. This in turn would result in higher prices and hence classified as a RTP.

Resale Price Maintenance

The law states that “Any agreement to sell goods on condition that the prices to be charged on 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”. It is a practice in which the manufacturer or supplier notifies a price to retailer as the minimum price for the sale. As per the Section 39-40, fixing any minimum price is prohibited. The price mentioned in the price list must be the maximum price that the dealer can charge and that they can sell the goods at a price lower than that. The premise being that not allowing the sale below a given price partly neutralizes competition [12] . However, manufacturers may argue that they follow such a practice to keep their dealers (and hence themselves) profitable. Some of them also defend this practice by saying it ensures fair returns for both and that governments do not have the right to interfere.

Area Restriction

The law states that “Any agreement to limit, restrict or withhold the output or supply of any goods or allocate any area or market for the disposal of goods”. This clause deals with exclusive dealership in order to control the production and supply and allocate the markets to distributors so as to divide the market amongst the few suppliers or manufacturers and thereby control the market. This hinders competition. However, restriction on location and selling the product from a particular location are not considered as RTPs.

Legal Case [13] : Nylon Filament Yarn had set aside 75% of the nylon yarn at concessional rate and 25% of the yarn at market rates. The Commission ruled that such an agreement is prohibited because by this practice, the market rate would he high because of the general shortage of the nylon yarn. Thus, both area restriction and customer restriction are prohibited. It also brings about manipulation of prices and distorts competition.

Remedies

The MRTP Act states all the above types of RTPs to be legally prejudicial to the public interest. The MRTP Commission was the body responsible for the controlling the RTPs and it had the powers to inquiry into [14] any restrictive trade practice

upon receiving a complaint of facts which constitute such practice from any trade association, consumer or a registered consumers’ association

upon a reference made to it by the Central Government or a State Government, or

upon an application made to it by the Director General, or

upon its own knowledge or information;

It is to be noted that inquiries into monopolistic practices do not hold anymore after the passing of Competition Law.

If after enquiry, the practice is found to be prejudicial to the public interest, there are two kinds of remedies

Discontinue the practice or do not repeat it. However, RTPs agreements are NOT declared void. Only registration formalities are to be complied with

Grant permission to practice the restrictive trade practice, if the party takes actions necessary to ensure that it is not prejudicial to public interest. The charged parties make use of gateways provided in the law in this case. Anyone against whom the charge of RTP has been established can plead for gateways provided in the MRTP Act [15] (The complete list is available in Appendix).

If the RTP is proved to be against public interest, a notice of enquiry is issued. This is followed by issuing of Cease & Desist Order in which certain specific schemes are mentioned which ensures that the vice of RTP is removed and there is no possibility of repeating it in future. It is to be noted that there are no fines or imprisonment.

Legal Case [16] : The Statesman was prescribing a combined rate of advertisement for its newspaper editions from Delhi and Calcutta, thereby compelling advertisers to take space in Delhi edition, as a precondition to publish advertisements in Calcutta edition. The Cease and Desist order proposed a scheme under which certain percentage of the rate differential had to be maintained between the two editions.

There can be restrictive trade practices which can promote consumer interest e.g. the case of Telco discussed under the ‘Exclusive Dealings’ section above. Generally, MRTP did not impose penalties for offences. However, with the introduction of Competition Act, penalties are imposed for offences made as discussed aboveAnshul Gupta2010-08-20T22:13:00

Recommended Vikas

The next section will discuss the interplay between the RTPs and Intellectual Property Rights

RTP and IPRhinger2010-08-20T21:44:00

Anshul to write from here

Bibliography:

Pradeep S Mehta and Manish Agarwal, 2006. “Time for a Functional Competition Policy and Law in India”

Subhadip Ghosh and Thomas W. Ross, India’s New Competition Law: A Canadian Perspective

Anurag K Agarwal, 2005. “Competition Law in India: Need to Go slow and Steady”

Competition Commission of India, 2004. “Competition Law and Policy in India”

Competition Law in Asiahinger2010-08-18T03:01:00

Nishant, What reference is this?

Basudev Ray, Commentaries on Monopolies and Restrictive Trade Practices Act

Restrictive trade practices and public interest; Ravi Karan Singh

http://jurisonline.in/2008/01/emergence-of-competitive-laws-in-india/

http://www.cuts-international.org/doc01.doc

http://www.vakilno1.com/bareacts/mrtpact/s10.htm