modern competition law

8/6/2019 Modern Competition Law

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Modern competition law (also known as antitrust law) is primarily concerned with the prohibition or

regulation of certain kinds of behaviour by market participants that might have an adverse effect on

competition. These include agreements or mergers between firms as well as activities of individual

firms. These include agreements or mergers between firms as well as activities of individual firms. The

agreements that may need to be scrutinized are in turn subdivided into two categories. Horizontal

agreements between competitors selling the same or similar products may result in a cartel that

collusively fixes prices, restricts output, divides up markets, or makes collusive bids in an auction or

procurement process. Vertical agreements between firms at different stages in the production and

distribution chain may also limit competition, for example by requiring distributors not to sell a

competitors product, not to sell outside a particular territory, or to maintain resale prices imposed by

the producer. The behaviour of a dominant single firm may also be regarded as anti-competitive if its

primary motivation is to drive out rivals or deter potential competitors from entering the market. This

abuse of dominance may involve temporarily charging predatory prices below costs so as to drive out

competitors who are unable to sustain losses. Or it could take the form of tying the sale of a product in

which the firm has a dominant share of the market (for example, computer hardware, printers or cars),

to another product or service provided by the same firm for which there are many competing suppliers

(the corresponding examples would be software, printer cartridges, and spare parts and servicing).

Cartels harm consumers while seldom yielding any efficiency gains, and therefore in most countries

evidence of a cartel agreement is sufficient to condemn it, without further investigation of its effects.

The other actions described above may, however, be approved on a case-by-case basis under a rule of

reason if they provide offsetting benefits. For example, a merger reduces the number of competitors,

but may result in synergies or economies of scale that reduce costs. Vertical restrictions may be

necessary to encourage distributors to invest in proper display facilities and customer support, and may

thus enhance competition with other brands. Tying the sale of complementary products may be

required to ensure performance or safety. These cases require careful analysis of the efficiency gains

and the degree of competition in the relevant market, which must be defined taking into account

potential competition from new suppliers and substitutable products. In cases where the efficiency

gains do not outweigh the injury to competition, the competition authority may block the merger or

issue an injunction to terminate the impugned agreement or behaviour, together with a deterrent fine.

But it may also order a modification of the merger, agreement or behaviour, so as to preserve its

benefits while minimizing adverse effects on competition. All this requires subtle analysis of the firms

conduct and the market in question.


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In light of the preceding discussion, it should be clear that the objective of modern antitrust is to

prevent market players from restricting competition in ways that are on balance harmful to efficiency

and consumer welfare. It targets abuse of a dominant position in the market, not firm size or dominance

as such, and it does not seek directly to control prices or profits: it only strives to preserve conditions

which would allow market forces to keep them in check. It does not attempt to fulfill social objectives

such as protecting employment. In fact, attempting to promote competition and efficiency may actually

result in job losses.

In sectors where technology and heavy capital costs make competition infeasible (for example, in local

electricity distribution, landline telephone networks, oil pipelines, or ports and airports), monopoly may

be allowed, with a sectoral regulator to award licences and regulate prices, quantities and quality of

service. Antitrust issues may still arise if the monopolist owns or merges with a firm that is a buyer of its

services in a market in which there are actual or potential competitors. (The corresponding examples

would be power generation, mobile telephony, oil refining, shipping and air transport.) The monopolist

may overcharge or deny access to competitors in the downstream activity, thus abusing its upstream

monopoly power in favour of its downstream subsidiary. There is therefore a case for exempting smallfirms from some provisions of the law. But this should be done as a matter of policy rather than

selectively dispensing social justice through individual decisions of the competition authority.

Furthermore, it should be kept in mind that condoning anti-competitive behaviour does imply that

higher prices and poorer quality will be inflicted on buyers, who may also be small producers or poor

consumers. Conversely, competition law can protect these vulnerable sections of society from anti-

competitive conduct by powerful firmsprovided that it is vigorously and impartially enforced.

BACKGROUND SETTING LEADING TO THE ACT

Before considering the other provisions of the Competition Act, it may be useful to understand the

economic milieu which led India to enact this Act. Amongst various other factors, the major ones

include the obligations cast upon the Indian government by the WTO Agreement viz. General

Agreement on Trade and Services (GATS), TRIPS etc. and the entry of large multinational companies in

India. The Government also considered the MRTP Act was enacted to contain the concentration of

economic power and was not the right mechanism suited to deal with issues relating to preservation

and protection of competition, especially in the new business environment. The Central Government

appointed a high level committee on competition policy and law for the same.

The Competition Act, 2002 received the assent of the President on 13th

January 2003, subsequesnt to

which various sections have been brought into force from time to time. The basic objective is to

provide a law relating to competition among enterprises that will ensure that the process of


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competition is left free without stronger trading enterprises manipulating the market to their

advantage and following from that, to the disadvantage of the consumer.

The key provisions include Section 3, which deals with anti-competitive agreements, Section 4 which

discusses abuse of dominant position and Section 5 which deals with combinations. Section 6 deals

with regulation of combinations. A combination may be an acquisition or a merger.

Status of Competition Law in U.S & E.U:

UNITED STATES OF AMERICA:

Modern competition law begins with the United States legislation of the Sherman Act of 1890 and the

Clayton Act of 1914. While other, particularly European, countries also had some form of regulation

on monopolies and cartels, the US codification of the common law position on restraint of trade had a

widespread effect on subsequent competition law development. Both after World War II and after the

fall of the Berlin wall, competition law has gone through phases of renewed attention and legislative

updates around the world.

The two largest and most influential systems of competition regulation are United States antitrust law

and European Community competition law. National and regional competition authorities across the

world have formed international support and enforcement networks.

Section 1 of the Sherman Act, the principal antitrust statute of the U.S and perhaps the earliest in the

worlds enacted in 1890 proscribes agreements in restraint of trade in the most general terms. The

opening sentence of the Section states that: Every contract, combination in the form of trust or

otherwise or conspiracy, in restraint of trade or commerce among the several States, or with foreign

nations, is declared to be illegal. The U.S Supreme Court in Standard Oil Co. of New Jersey v. U.S

declared: that in view of the many new forms of contracts and combinations which were being

evolved from existing economic conditions, it was deemed essential by an all-embracing enumeration

to make sure that no form of contract or combination by which an undue restraint from

condemnation. The Court also added that the standard for determining that whether there was

violation of statute was Rule of Reason.


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Again in Business Electronics Corp. v Sharp Electronics Corporation, the U.S Supreme Court explained

the scope of the term restraint of trade in section1 of the Sherman Act: the term restraint of

trade- like the term at common law before the statute was adopted refers not to a particular list of

agreements, but to a particular economic economic consequence, which may be produced by quite

different sorts of agreements in varying times and circumstances.

Section 2 of the Sherman Act states, Every person who shall monopolize, or attempt to monopolize, or

combine or conspire with any other person or persons, to monopolize any part of the trade or

commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on

conviction thereof, shall be punished by fine....

The Sherman Act did not have the immediate effects its authors intended, though Republican

President Theodore Roosevelt's federal government sued 45 companies, and William Taft used it

against 75. The Clayton Act of 1914 was passed to supplement the Sherman Act. Specific categories of

abusive conduct were listed, including price discrimination (section 2), exclusive dealings (section 3)

and mergers which substantially lessen competition (section 7). Section 6 exempted trade unions

from the law's operation. Both the Sherman and Clayton acts are now codified under Title 15of the

United States Code.

Since the mid-1970s, courts and enforcement officials generally have supported view that antitrust

law policy should not follow social and political aims that undermine economic efficiency. The

antitrust laws were minimalized in the mid-1980s under influence of Chicago school of economics and

blamed for the loss of economic supremacy in the world.

Other Antitrust Legislation

Concerned about the continued growth of monopoly power, in 1914 Congress created the Federal

Trade Commission (FTC), a five-member commission that, along with the antitrust division of the

Justice Department, has the power to investigate firms that use illegal business practices.

In addition to establishing the FTC, Congress enacted new antitrust laws intended to strengthen the

Sherman Act. The Clayton Act (1914) clarifies the illegal per se provision of the Sherman Act by

prohibiting the purchase of a rival firm if the purchase would substantially decrease competition, and

outlawing interlocking directorates, in which there are the same people sitting on the boards of


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directors of competing firms. More significantly, the act prohibits price discrimination that is designed

to lessen competition or that tends to create a monopoly and exempts labor unions from antitrust

laws.

The Sherman and Clayton acts, like other early antitrust legislation, were aimed at preventing mergers

that reduce the number of firms in a single industry. The consolidation of two or more producers of

the same good or service is called a horizontal merger. Such mergers increase concentration and,

therefore, the likelihood of collusion among the remaining firms.

The CellerKefauver Act of 1950 extended the antitrust provisions of earlier legislation by blocking

vertical mergers, which are mergers between firms at different stages in the production and

distribution of a product if a reduction in competition will result. For example, the acquisition by Ford

Motor Company of a firm that supplies it with steel would be a vertical merger.

European Union law

In 1957 six Western European countries signed the Treaty of the European Community (EC Treaty or

Treaty of Rome), which over the last fifty years has grown into a European Union of nearly half a

billion citizens. The European Community is the name for the economic and social pillar of EU law,

under which competition law falls. Healthy competition is seen as an essential element in the creation

of a common market free from restraints on trade.[35]

The first provision is Article 81 EC, which deals

with cartels and restrictive vertical agreements. Prohibited are:

"(1) ...all agreements between undertakings, decisions by associations of undertakings and concerted

practices which may affect trade between Member States and which have as their object or effect the

prevention, restriction or distortion of competition within the common market..."

Article 81 EC's goals are unclear. There are two main schools of thought. The predominant view is that

only consumer welfare considerations are relevant there.[36]

However, a recent book argues that this

position is erroneous and that other Member State and European Union public policy goals (such as

public health and the environment) should also be considered there.[37]

If this argument is correct

then it could have a profound effect on the outcome of cases[38]

as well as the Modernisation process

as a whole.


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Article 81(1) EC then gives examples of "hard core" restrictive practices such as price fixing or market

sharing and 81(2) EC confirms that any agreements are automatically void. However, just like the

Statute of Monopolies 1623, Article 81(3) EC creates exemptions, if the collusion is for distributional

or technological innovation, gives consumers a "fair share" of the benefit and does not include

unreasonable restraints (or disproportionate, in ECJ terminology) that risk eliminating competition

anywhere.

Article 82 EC deals with monopolies, or more precisely firms who have a dominant market share and

abuse that position. Unlike U.S. Antitrust, EC law has never been used to punish the existence of

dominant firms, but merely imposes a special responsibility to conduct oneself appropriately.[39]

Specific categories of abuse listed in Article 82 EC include price discrimination and exclusive dealing,

much the same as sections 2 and 3 of the U.S. Clayton Act.

Also under Article 82 EC, the European Council was empowered to enact a regulation to control

mergers between firms, currently the latest known by the abbreviation of Regulation 139/2004/EC.[40]

The general test is whether a concentration (i.e. merger or acquisition) with a community dimension

(i.e. affects a number of EU member states) might significantly impede effective competition. Again,

the similarity to the Clayton Act's substantial lessening of competition.

Finally, Articles 86 and 87 EC regulate the state's role in the market. Article 86(2) EC states clearly that

nothing in the rules can be used to obstruct a member state's right to deliver public services, but that

otherwise public enterprises must play by the same rules on collusion and abuse of dominance as

everyone else. Article 87 EC, similar to Article 81 EC, lays down a general rule that the state may not

aid or subsidize private parties in distortion of free competition, but then grants exceptions for things

like charities, natural disasters or regional development.

Recognizing that existing remedies and sanctions may be insufficient to deter breaches of competition

law, several EU Member States have followed the US example and introduced pecuniary penalties for

executives, professional disqualification orders, and even jail sentences.

REPEALING THE MRTP ACT

In October 1999, the Government of India appointed a High Level Committee on Competition Policy

and Competition Law to advise a modern competition law for the country in line with international

developments and to suggest a legislative framework, which may entail a new law or appropriate

amendments to the MRTP Act. The Committee presented its Competition Policy report to the


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Government in May 2000. The draft competition law was drafted and presented to the Government in

November 2000.

It was suggested that:

- The MRTP Act 1969 may be repealed and the MRTP Commission wound up. The provisions

relating to unfair trade practices need not figure in the Indian Competition Act as they are

presently covered by the Consumer Protection Act, 1986.

- The pending UTP cases in the MRTP Commission may be transferred to the concerned consumer

Courts under the Consumer Protection Act, 1986. The pending MTP and RTP Cases in MRTP

Commission may be taken up for adjudication by the CCI from the stages they are in.

- Thus, on 1 September 2009 an era came to an end with the repeal of the 40 year old Monopolies

and Restrictive Trade Practices (MRTP) Act.


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- The MRTP Act, 1969-2009

The MRTP Act was a product of another era. It covered three categories of competition matters,

superficially corresponding to those described above, but dealt with them in ways that departed from

standard antitrust treatment. Chapter III, on concentration of economic power, originally applied to

firms that were either large (those whose assets together with those of their interconnected

undertakings exceeded Rs 20 crore), or dominant (whose assets exceeded Rs one crore and whose

share of the market exceeded one-third, later reduced to one-fourth in 1982). All such MRTP

companies were required to register themselves and thereafter obtain government permission for

mergers, amalgamations and takeoversbut also for establishment of new undertakings and substantial

expansion of old ones, thus reinforcing the then-prevailing system of industrial licensing. Chapter IV, on

monopolistic trade practices (MTPs), originally applied to monopolistic undertakings that were either

dominant (as defined above) or commanded half or more of the market along with not more than two

other independent undertakings. An inquiry could be ordered if it appeared that a monopolistic

undertaking was unreasonably limiting competition or technical development, which would today be

called abuse of dominancebut also if it appeared to be unreasonably maintaining or increasing prices

and limiting investment, which are usually not antitrust concerns. The government was armed with the

authority to prohibit MTPs, if necessary by regulating prices, production, distribution, and quality. It

could refer Chapter III applications or complaints about MTPs to the MRTP Commission, but did not

have to accept its opinion.

Chapters V and VI of the Act, based on the British Restrictive Practices Act of 1956, targeted restrictive

trade practices (RTPs). Certain specific types of inter-firm horizontal and vertical agreements, including

those described in the first section of this article, had to be registered with the Commission, which

would review them to ensure that they did not restrict competition. However, as in the UK, the firms

could defend agreements on specified grounds, known as gateways. These included benefits to

consumersbut also maintenance of employment or exports. Unlike Chapter III and IV matters, the

Commission was authorized to entertain complaints on RTPs and give decisions, although it could only

issue cease and desist orders.

Promoting competition was thus only one of many objectives of the MRTP Act, and the corrective

measures that were prescribed were similar to those of the then-prevailing licence-permit-control raj.

But even in the heyday of so-called socialism, most of the firms that should have been covered by

Chapter III did not register.


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Competition Act, 2002

Components of Competition Act: The Act essentially covers the four basic ingredients:

y Anti - Competitive Agreements

y Abuse of Dominance

y Combinations Regulation

y Competition Advocacy

According to Section 2(b), agreement includes any arrangement or understanding or action in

concert,

(i)whether or not, such arrangement, understanding or action is formal or in writing; or

(ii) whether or not such arrangement, understanding or action is intended to be enforceable by

legal proceedings.

Criteria for Evaluation of Competition

The Competition Act deals with three types of anti-competitive acts in the market :-

(1) Anti-competitive agreements.

(2) Abuse of dominant position.

(3) Anti-competitive amalgamations.

(1) Anti-competitive agreements- Section 3 of the Competition Act prohibits the anti-competitive

agreements and defines them as agreements entered into between enterprises or associations of

enterprises or persons or associations of persons or between any person and enterprise or practice

carried on, or decision 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 either directly

or indirectly determines purchase or sale prices or limits or controls production, supply, markets,

technical development, investment or provision of services; or shares the market or source of


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production or provision of services by way of allocation of geographical area of market, or type of

goods or services, or number of customers in the market or any other similar way; or directly or

indirectly results in bid rigging or collusive bidding. All the preceding conditions shall be presumed

to have an appreciable adverse effect on competition. For the purpose of interpretation the section

provides for the following definitions of terms :-

(a) "tie-in arrangement" includes any agreement requiring a purchaser of goods, as a condition of

such purchase, to purchase some other goods;

(b) "exclusive supply agreement" includes 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;

(c) "exclusive distribution agreement" includes any agreement to limit, restrict or withhold the

output or supply of any goods or allocate any area or market for the disposal or sale of the goods;

(d) "refusal to deal" includes any agreement which restricts, or is likely to restrict, by any method

the persons or classes of persons to whom goods are sold or from whom goods are bought;

(e) "resale price maintenance" includes any agreement to sell goods on condition that the prices to

be charged on the resale by the purchaser shall be the prices stipulated by the seller unless it isclearly stated that prices lower than those prices may be charged.

At the same time, section 19(3) of the competition act describes the considerations to be duly taken

into account by the competition commission while assessing anti-competitive agreements. These

considerations are :-

(a) creation of barriers to new entrants in the market;

(b) driving existing competitors out of the market;

(c) foreclosure of competition by hindering entry into the market;

(d) accrual of benefits to consumers;


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(e) improvements in production or distribution of goods or provision of services;

(f) promotion of technical, scientific and economic development by means of production or

distribution of goods or provision of services.

(2) Abuse of dominant position- Section 4 of the Competition Act defines the abuse of dominant

position by an enterprise or group. Section 4(2) defines the actions to be treated as abuse of

dominant position. These are when an enterprise or group :-

(a) directly or indirectly, imposes unfair or discriminatory

(i) condition in purchase or sale of goods or service;

(ii) price in purchase or sale (including predatory price) of goods or

service. ( For the purposes of this clause, the unfair or discriminatory condition in purchase or sale

of goods or service and unfair or discriminatory price in purchase or sale of goods-including

predatory price or service shall not include such discriminatory condition or price which may be

adopted to meet the competition)

(b) limits or restricts

(i) production of goods or provision of services or market; or

(ii) technical or scientific development relating to goods or services to the prejudice of consumers;

(c) indulges in practice or practices resulting in denial of market access in any manner;

(d) makes conclusion of contracts subject to acceptance by other parties of supplementary

obligations which, by their nature or according to commercial usage, have no connection with the

subject of such contracts;

(e) uses its dominant position in one relevant market to enter into, or protect other relevant

market.


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For the purposes of this section, the expression

(a) "dominant position" means a 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 favour.

(b) "predatory price" means the sale of goods or provision of services, at a. price which is below the

cost, as may be determined by regulations, of production of the goods or provision of services, with

a view to reduce competition or eliminate the competitors.

For the purpose of this section the term group is taken to have the same meaning as assigned to

it in clause (b) of the Explanation to section 5 and which says that a group means two or more

enterprises which, directly or indirectly, are in a position to

(i) exercise twenty-six per cent. or more of the voting rights in the other enterprise; or

(ii) appoint more than fifty per cent of the members of the board of directors in the other

enterprise; or

(iii) control the management or affairs of the other enterprise.

For the purpose of determining an abuse of dominant position, sections 19(4), (5), (6), and (7) of the

Competition Act provide various considerations for the observance of the Competition Commission

during evaluation of an abuse of dominant position. They are as follows :-

(a)Consideration for determination of dominant position19-

(a) market share of the enterprise;

(b) size and resources of the enterprise;


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(c) size and importance of the competitors; (d) economic power of the enterprise including

commercial advantages over competitors;

(e) vertical integration of the enterprises or sale or service network of such enterprises;

(f) dependence of consumers on the enterprise;

(g) monopoly or dominant position whether acquired as a result of any statute or by virtue of being

a Government company or a public sector undertaking or otherwise; (h) entry barriers including

barriers such as regulatory barriers, financial risk, high capital cost of entry, marketing entry

barriers, technical entry barriers, economies of scale, high cost of substitutable goods or service for

consumers;

(i) countervailing buying power;

(j) market structure and size of market;

(k) social obligations and social costs;

(/) relative advantage, by way of the contribution to the economic development, by the enterprise

enjoying a dominant position having or likely to have an appreciable adverse effect on competition;

(m) any other factor which the Commission may consider relevant for the inquiry.

(b) Consideration for determination of relevant geographic market20-

(a) regulatory trade barriers;

(b) local specification requirements;

(c) national procurement policies;

(d) adequate distribution facilities;

(e) transport costs;

(f) language;


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(g) consumer preferences;

(h) need for secure or regular supplies or rapid after-sales services

(c) Consideration for determination of relevant product market21-

(a) physical characteristics or end-use of goods;

(b) price of goods or service;

(c) consumer preferences;

(d) exclusion of in-house production;

(e) existence of specialised producers;

(f) classification of industrial products.

(3) Anti-competitive amalgamations

Sections 5 & 6 of the Competition Act deal with combinations and their regulations. These sections

have not been notified yet and therefore are not in force. At the same time the Reserve Bank of

India, had sought exemption for bank mergers from the provisions of the Competition Act22 as it

argued that the RBI has the required expertise and competence to deal with bank mergers and

subjecting such mergers to the scrutiny of the Competition Commission of India (CCI), would only

result in more delays in processing of such requests. The RBI also claimed that such a step would go

against the spirit of the mandate provided to the RBI under the RBI Act to act as the central

authority in all banking issues which include bank amalgamations. The issue is still open for debate

despite the Finance Ministers statement that competition issues in the banking sector will be dealt

with by the RBI23.


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VI. Regulation of Combinations

Section 6 of the competition act deals with regulation of combinations. As per the provisions of this

section, any person or enterprise entering into or proposing to enter into a combination shall notify

the commission in the prescribed form along with the prescribed fee within thirty days of approval

of the proposal relating to merger or amalgamation by the board of directors of the enterprises

concerned with such merger or amalgamation, or within thirty days of execution of any agreement

or other document for acquisition or acquiring of control.

The section provides that no combination shall come into effect till two hundred and ten days have

passed from the day on which such notice was given to the competition commission or the

commission has passed an order under section 31, whichever is earlier24. In case of any share

subscription or financing facility or any acquisition, by a public financial institution, foreign

institutional investor, bank or venture capital fund, pursuant to any covenant of a loan agreement

or investment agreement, the provisions of section 6 will not apply25. Such a public financial

institution, foreign institutional investor, bank or venture capital fund would have to file within

seven days from the date of the acquisition in the form specified, with the Commission the details

of the acquisition including the details of control, the circumstances for exercise of such control and

the consequences of default arising out of such loan agreement or investment agreement, as the

case may be. The terms Foreign Institutional Investor and Venture Capital Fund are assigned the

same meaning for the purpose of this act as defined in clause (a) of the explanation to section

115AD and clause (b) of the explanation to clause (23 FB) of section 10 respectively of the Income-

tax Act.

The factors to be taken into account by the commission to investigate the combinations are

provided in the act as follows :-

(a) actual and potential level of competition through imports in the market;

(b) extent of barriers to entry into the market;

(c) level of combination in the market;


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(d) degree of countervailing power in the market; (e) likelihood that the combination would result

in the parties to the combination being able to significantly and sustainably increase prices or profit

margins;

(f) extent of effective competition likely to sustain in a market;

(g) extent to which substitutes are available or arc likely to be available in the market;

(h) market share, in the relevant market, of the persons or enterprise in a combination, individually

and as a combination;

(i) likelihood that the combination would result in the removal of a vigorous and effective

competitor or competitors in the market;

(j) nature and extent of vertical integration in the market;

(k) possibility of a failing business;

(l) nature and extent of innovation;

(m) relative advantage, by way of the contribution to the economic development, by any

combination having or likely to have appreciable adverse effect on competition;

(n) whether the benefits of the combination outweigh the adverse impact of the combination, if

any.

VII. Powers of the commission to issue orders regarding combinations

Section 31 of the Competition Act empowers the Competition Commission to issue certain orders

with respect to the combinations. The provisions are :-

(1) Where the Commission is of the opinion that any combination does not, or is not likely to, have

an appreciable adverse effect on competition, it shall, by order, approve that combination including

the combination in respect of which a notice has been given under sub-section (2) of section 6.


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(2) Where the Commission is of the opinion that the combination has, or is likely to have, an

appreciable adverse effect on competition, it shall direct that the combination shall not take effect.

(3) Where the Commission is of the opinion that the combination has, or is likely to have, an

appreciable adverse effect on competition but such adverse effect can be eliminated by suitable

modification to such combination; it may propose appropriate modification to the combination, to

the parties to such combination.

(4) The parties, who accept the modification proposed by the Commission under subsection(3),

shall carry out such modification within the period specified by the Commission.

(5) If the parties to the combination, who have accepted the modification under subsection(4), fail

to carry out the modification within the period specified by the Commission, such combination shall

be deemed to have an appreciable adverse effect on competition and the Commission shall deal

with such combination in accordance with the provisions of this Act.

(6) If the parties to the combination do not accept the modification proposed by the Commission

under sub-section (3), such parties may, within thirty working days of the modification proposed by

the Commission, submit amendment to the modification proposed by the Commission under that

sub-section.

(7) If the Commission agrees with the amendment submitted by the parties under subsection(6), it

shall, by order, approve the combination.

(8) If the Commission does not accept the amendment submitted under sub-section (6), then, the

parties shall be allowed a further period of thirty working days within which such parties shall

accept the modification proposed by the Commission under sub-section (3).

(9) If the parties fail to accept the modification proposed by the Commission within thirty working

days referred to in sub-section (6) or within a further period of thirty working days referred to in

sub-section (8), the combination shall be deemed to have an appreciable adverse effect on

competition and be dealt with in accordance with the provisions of this Act.


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(10)Where the Commission has directed under sub-section (2) that the combination shall not take

effect or the combination is deemed to have an appreciable adverse effect on competition under

sub-section (9), then, without prejudice to any penalty which may be imposed or any prosecution

which may be initiated under this Act, the Commission may order that

(a) the acquisition referred to in clause (a) of section 5; or

(b) the acquiring of control referred to in clause (b) of section 5; or

(c) the merger or amalgamation referred to in clause (c) of section 5, shall not be given effect to:

Provided that the Commission may, if it considers appropriate, frame a scheme to implement its

order under this sub-section.

(11)If the Commission does not, on the expiry of a period of 54[two hundred and ten days from the

date of notice given to the Commission under sub-section (2) of section 6, pass an order or issue

direction in accordance with the provisions of sub-section (1) or sub-section (2) or sub-section (7),

the combination shall be deemed to have been approved by the Commission.

Explanation.For the purposes of determining the period of two hundred and

ten days specified in this subsection, the period of thirty working days specified in sub-section (6)

and a further period of thirty working days specified in subsection (8) shall be excluded.

(12)Where any extension of time is sought by the parties to the combination, the period of ninety

working days shall be reckoned after deducting the extended time granted at the request of the

parties.

(13)Where the Commission has ordered a combination to be void, the acquisition or acquiring of

control or merger or amalgamation referred to in section 5, shall be dealt with by the authorities

under any other law for the time being in force as if such acquisition or acquiring of control or

merger or amalgamation had not taken place and the parties to the combination shall be dealt with

accordingly.


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(14)Nothing contained in this Chapter shall affect any proceeding initiated or which may be initiated

under any other law for the time being in force.

CONCLUSION:

The new Act, whose enforcement belatedly began in May 2009, appears on the surface to conform

more closely to the principles of modern antitrust economics. It covers the usual three areas discussed

in the first section of this article: anti-competitive agreements between firms, abuse of dominance by a

single firm, and combinations (i.e., mergers, amalgamations, or acquisitions of control). Wisely, it does

not deal with unfair trade practices, which distracted the MRTP Commission. It defines terms that were

left open-ended in the MRTP Act, and lays down several economic criteria that the CCI should apply in

deciding cases, as well as detailed time-bound steps for reviewing combinations. Unlike the MRTP Act,

the new Act empowers the Commission, rather than the government, to decide on combinations and

also on abuse of dominance (the counterpart of MTPs in the earlier Act). The CCI can block or undo a

combination, but it can also require that it be modified so as to allow it to proceed while taking care of

competition concerns. The Competition Act explicitly asserts jurisdiction over foreign combinations and

the conduct of firms based abroad having anti-competitive effects in India. This restores Indias ability toact against foreign cartels, and to follow the European Commission in taking action against Microsoft for

bundling applications software with its Windows operating system. Unlike the MRTP Act, the

Competition Act provides for substantial monetary penalties on firms who infringe it or fail to comply

with CCI orders, and a leniency programme that allows for reduced penalties to induce cartel members

to provide evidence that can be used against others. The CCI, unlike its predecessor, can call on outside

experts and also undertake advocacy to spread awareness of competition principles. Apart from these

positive features of the Act itself, the CCI has been constituted with its full complement of members, a

much larger staff, and a website, which the MRTP Commission never had.

In its treatment of anti-competitive agreements, the Act requires more analysis and gives greater

discretionary power to the CCI than is available to far more experienced agencies in developed

countries. In most antitrust regimes, cartel agreements are treated as illegal per se, without any inquiry

into their effects. In section 3(3) of the Competition Act, however, such agreements are only presumed


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to have an appreciable adverse effect on competition (AAEC). It is well established under Indian law

that a presumption can be rebutted, and section 19(3) of the Act allows the CCI, while determining

whether an agreement has an AAEC, to consider its possible benefits to consumers, improvement of

production of goods and provision of services, and promotion of technical, scientific and economic

development. Cartels may thus be dealt with under a rule of reason, in which positive as well as

negative effects can be taken into account.

The guidance provided by the Act for determining whether an agreement has an AAEC is unsatisfactory.

Section 19(3) is similar to Article 101(3) (formerly numbered 81(3)) of the Treaty of the European Union,

but in order to be condoned under the latter, an agreement must share the benefits with consumers,

must not involve restrictions that are unnecessary to attaining the efficiency objective, and must not

substantially eliminate competition. None of these conditions is required under the Indian Competition

Act. Unlike the MRTP Act, it does not even require that the benefits be balanced against the losses

inflicted on other parties. Besides, unlike in the EU, the Act does not contain any provision for block

exemption for small firms involved in certain categories of agreements that are likely to have positive

effects. This means that the CCI will have to evaluate each agreement individually. And while the Act

provides numerous loopholes for business agreements, it does not exempt trade unions or

cooperatives, which on a literal reading could be regarded as price-fixing agreements by associations of

persons.11 Antitrust laws of most countries explicitly exempt trade unions and cooperatives, as did the

MRTP Act.

Third, the Competition Acts provisions on abuse of dominance, which also selectively adapt several

phrases from the EU Treaty, leave much to be desired. These could work either in favour or against big

business. On the one hand, the Act favours cash-rich firms by allowing them to charge below-cost prices

to meet the competition without attracting penalties for predatory pricing. This defence is not

permitted in the EU. On the other hand, the Act authorizes the CCI to break up a firm to ensure that it

does not abuse its dominant position, without requiring evidence that it has done so. Moreover,

evidence of an AAEC is not required to prove abuse. This will invite allegations of unfair ordiscriminatory pricing or conditions in a contract, of the kind that were entertained under the MRTP Act

but which are not competition concerns. The five decisions so far reported on the CCI website relate to

cases of this nature, and it is encouraging that the Commission has dismissed them on the grounds that

dominance was not established and/or competition was not affected. Such clear precedents will have to

be set in other areas where the law is ambiguous.


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Fourth, the Acts revival of merger review remains controversial. The original Act provided for voluntary

notification of combinations in which the assets or turnover of the combined entity would exceed

certain threshold levels, specified separately for assets or turnover within India and worldwide. But on

the recommendations of a Parliamentary committee, the amending Act of 2007 made notification of

such combinations mandatory. It also sensibly inserted a sub-threshold, in terms of the combined assets

or turnover of the parties within India, so that foreign combinations exceeding the thresholds for global

assets or turnover but having little or no local nexus with the Indian market would not have to be

notified to the CCI. However, powerful interests were still not satisfied. After protests by Indian industry

as well as memoranda from the American Bar Association and International Bar Association, the CCI

published Draft Regulations in 2008, specifying further sub-thresholds for assets and turnover in India

for each party individually. This would save firms from the paperwork involved in filing applications for

mergers that are unlikely to have an AAEC, and the CCI from having to devote resources to investigate

them. But it would also mean turning a blind eye to mergers in which foreign firms with no current

Indian business enter the Indian market by taking over local firms, instead of competing through exports

or foreign direct investment. The Draft Regulations thus ignored potential competition, which is taken

into account in merger cases in the U.S. and Canada. This issue has become salient recently with several

large Indian pharmaceutical companies being acquired by multinationals. But as of early July 2010, the

sections of the Act dealing with regulation of combinations had not yet been brought into force, and therelated Draft Regulations had disappeared from the CCI website.

Fifth, some institutional issues give rise to disquiet. There is likely to be conflict with sectoral regulators

(such as the Telecommunications Regulatory Authority of India), some of whom also have mandates to

regulate competition. The Act also compromises the autonomy of the CCI by giving the government

powers to supersede and reconstitute it if it fails to discharge its functions, to comply with policy

directives, or even in the public interest. In order to divest the CCI of powers that are judicial in

nature, the 2007 amendment created multiple points at which its decisions can be held up or reversed,but also tax authorities for levying monetary penalties and a magisterial court for awarding jail terms for

failure to comply with CCI orders.

Finally, there is the issue of expertise to implement the Act, which is replete with technical concepts

requiring fairly advanced knowledge of modern industrial economics. As pointed out above, on anti-


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competitive agreements the Act leaves much more to the Commissions analysis and discretion than

competition regimes in countries with far greater experience.

To conclude, the governments handling of its competition laws can be faulted on several counts. It took

32 months to enact the relevant amendments after the Supreme Court cleared the way for

appointments to the CCI in January 2005, and another twenty months to make appointments and notify

the enforceable provisions of the Act, ensuring that the CCI would lose all the expertise built up since

2003. A further year elapsed without a regular Director General at the helm. With the CCI unable to

decide cases, the government failed to make fresh appointments to the MRTP Commission, allowing its

ranks to be depleted, further weakening whatever antitrust enforcement was being undertaken, and

allowing cases to pile up. After the MRTP Commission was finally wound up, the government tossed

pending UTP cases and investigations into the lap of the National Commission, whose inability to handle

them was known well in advance.

OTHER CHALLENGES

Competition Policy and Professional Services:

Owing to GATS, the first ever set of multilateral, legally enforceable rules covering international trade in

services. The agreement incorporates the principles of most favoured nation and national treatment

and deals with market reforms with a view to removing all barriers to trade in services, transport,

telecommunications and natural persons.

The definition of service under Section 2 (u) of the Act would cover all professions such as accountancy,

law, and medicine and read with the definition of an enterprise under Section 2 (h), individuals

practicing any profession as an economic activity would be governed by the provisions of the Act. The

bodies regulating the practice of such professions, for eg: Bar Council of India, Institute of Chartered

Accountants, Medical Councils etc would be associations of persons under Section 2(l) (v) or under

Section 2(x), as the case may be. The affect is that their regulation relating to admission, practice,

charging remuneration for services etc, should be such as to conform to the Act.

Section 3(1) as it stands does not include decisions of associations of persons but refers only to

agreements between association of enterprises or association of persons. This means that rules of


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professional association would not by definition fall under section 3(1). This is a lacuna and needs urgent

rectification.

The profession of lawyers is governed by the Advocates Act, 1961. Like the accountancy profession, the

legal profession is governed by the said statute and self- regulation stipulations. If the Indian legal

system has to integrate internationally, an appropriate regulatory system must be in place which

ensures that,

(a) there is a general reciprocity of rights and non- discrimination,

(b) foreign lawyers/ firms are subject to the same disciplinary jurisdiction as Indian Lawyers,

(c) there are greater opportunities for the future development of the legal profession in India

(d) Indian law professionals can move abroad for rendering legal services.

(e) It is in this context, when existing barriers based on citizenship or nationality are increasingly

becoming irrelevant, that it is necessary to promote competitive quality in legal services and full

accountability therefore on the parts of lawyers. It is desirable to promote large partnerships of

lawyers to enable them to be globally competitive in efficiency and quality of services rendered.

Rules should provide for multi- disciplinary partnerships which would permit delivery of

composite services, as desired by the clients.

Similarly, members of any profession may not engage in anti-competitive practices in the course of

plasticizing their profession. Goldfarb v. Virgina State Bar, was the case where the U.SSupreme Court

rejected the contention that the practice of learned profession was not engaging in trade and

commerce.

Unnecessary barriers will have to be removed to facilitate professional development and improvement

in the quality of services besides building an environment for easy movement of legal professional

outside the country.

(a) the statutes governing professions need to be amended to be GATS compatible.


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(b) A positive approach is necessary on the part of the government and the professional

institutes/bodies to ensure that Indian professionals/ firms grow to become globally

competitive.

(c) A profession enjoys certain monopoly rights of practice in its designated field and the body

administering the profession enjoys considerable autonomy in its administration. These

monopoly rights and autonomy should be used for regulating quality of the profession, the

standards of entry and discipline and accepted norms of performance. They should not be used

to limit competition.

(d) Professions should not be denied normal opportunities of associations and promotion to

preclude opportunities for growth and development, to prevent the use of firms names on

narrow technical considerations and to act in a manner which insulates them not only from

global competition but also from the opportunity for global contact and interaction.

(e) Professional bodies should not utilize their rights of autonomy to counter the normal challenges

of global integration. It is illogical to have a totally protected profession in an environment of

global industrial integration.

Intellectual property, innovation and competition

Intellectual property and competition have become increasingly intertwined. On the one hand, it is

believed that promotion of innovation through enforcement of intellectual rights promotes

competitiveness, while on the other the contrary may be the consequence. The question rests on

whether it is legal to acquire monopoly through accumulation of intellectual property. In which case, the

judgment needs to decide between giving preference to intellectual rights or towards promoting

competitiveness

y Should antitrust laws accord special treatment to intellectual property

y Should intellectual rights be revoked or not granted when antitrust laws are violated.


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Concerns also arise over anti-competitive effects and consequences due to

y Intellectual properties that are collaboratively designed with consequence of violating antitrust

laws (intentionally or otherwise)

y and the further effects on competition when such properties are accepted into industry

standards

y Cross-licensing of intellectual property.

y Bundling of intellectual rights to long term business transactions or agreements to extend the

market exclusiveness of intellectual rights beyond their statutory duration.

y Trade secrets, if remain undecipherable, having an eternal length of life.

Some scholars suggest that a prize instead of patent would solve the problem of deadweight lose,

when innovators got their reward from the prize, provided by the government or non-profit

organization, rather than directly selling to the market. However innovators may accept the prize

only when it is at least as much as how much they earn from patent, which is a question difficult

to determine.


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modern competition law

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