29th November, 2013

Ajay Kumar 05 Chintan Kothari 12 Gulistaan Dumasia 18 Kashmira Khodaiji 24 Neha Kumar 29 Ruchit Butala 40 Subramanian 51 Saurab Salian 45 Sudarshan Jadhav 64 Yuvraj Tandon 59

PT-MBA 2nd year, 5th Trimester, NMIMS

Legal Environment of Business – Group assignment report on

“When world at large is a single platform for carrying out trade and commerce, the need

for Competition Act 2002”

Submitted to :

Prof. Anant Amdekar

Submitted by : Div – A

Contents

1. Introduction

2. Economic conditions leading to Competition Act

a. Historical Developments leading to enactment of MRTP Act

b. Transition from MRTP Act 1969 to Competition Act 2002

c. MRTP Act Vs Competition Act

3. The Competition Act details

a. Need for Competition

b. Benefits of Competition

c. Need for Competition Act

d. The Competition Act, defined

i. Non-competitive Agreements

ii. Abuse of Dominance

iii. Combination Regulations

iv. Competition Advocacy

e. Amendments to the Act

f. Competition Commission of India (CCI)

g. Competition Appellate Tribunal

h. Consequences of contravention of Competition Act

i. BRICS

j. Exemptions from the Act

k. Jurisdiction of Act

4. Latest Information & Statistical Data

5. Case Studies

6. Conclusion

7. Source of Information

Introduction

In pursuit of globalization, India has responded positively by opening up its economy to global

players, removing controls and resorting to liberalization. Indian Market needed to gear up and

face competition from within the country and outside. India was one of the first developing

countries to have a competition law in the form of the Monopolies and Restrictive Trade

Practices (MRTP) Act, 1969. However, with the advent of economic reforms in 1991, the law

was found inadequate for fostering competition in markets. Hence, the Competition Act, 2002

was enacted by the Parliament of India to establish the new competition regime in India and

MRTP was repealed.

Thus, with the increasing integration of the Indian economy and markets with the international

economy, by promulgating the Competition Act, the Government of India has also acquired a

wider perspective on regulation of market from merely curbing monopoly to promoting

competition. The act was later amended in 2007.

Competition Commission of India (CCI) has been established as a statutory authority to enforce

the provisions of the Act in India. It is a quasi-judicial body, formed under the provisions of the

Act, with the main objective to ensure that nation‟s markets are vigorous, vibrant, efficient, and

free from restrictions that harm trade and industry and also the end consumers. This has,

indeed, become a task of prime importance in the context of present day global markets, high

technology innovations and the fast changing economic landscape.

An effective law to regularize competition is a means of inspiring international confidence in an

economy. Foreign investors would not be willing to commit capital freely in a country where

there is no transparency in the system. The enactment of a competition law ensures the

international investors that the market can be trusted as a true economy which participates in

both local and foreign transactions and would be equally guided by the rules applicable to all in

the market place. A good competition policy, along with a sound competition law should help in

fostering competition, economic efficiency, consumer welfare and freedom of trade. This would

enable the government in meeting the challenges of globalization by increasing competition in

local and international markets.

Economic conditions that led to formation of

Competition Act

Since attaining Independence in 1947, India, for the better part of half a century thereafter,

adopted and followed policies comprising what are known as “Command-and-Control” laws,

rules, regulations and executive orders. The competition law of India, namely, the Monopolies

and Restrictive Trade Practices Act, 1969 (MRTP Act) was one such. It was in 1991 that

widespread economic reforms were undertaken and consequently the march from “Command-

and-Control” economy to an economy based more on free market principles commenced its

stride. As is true of many countries, economic liberalization has taken root in India and the need

for an effective competition regime has also been recognized. We will discuss below the

situation leading to enactment of MRTP Act and later its transition to Competition Act 2002.

Historical Developments leading to enactment of MRTP Act

After independence India adopted the strategy of planned economic development and hence

gave birth to Indian Industrial Policy 1948 and delineated the role of state in industrial

development. It emphasized growth, social justice and self reliance. But government had the

sole power and responsibility of taking economy to new levels. Private sector was given limited

licenses. Government controlled almost all areas of economic activity. There was neither and

easy entry nor an easy exit for the enterprises. Government determined everything from plant

size to prices. There were high tariff walls and other restrictions on foreign investments. Thus

free competition in the market was under severe fetters, mainly because of government policies

and strategies.

The licensing policy of Government favored the big business houses because they were

in a better position to raise huge capital and had managerial skill to run the industry. This

leads to concentration of economic power in few a few individuals or business houses.

Hence giving rise to monopolistic industries and consequently to their indulgence in

restrictive trade practices.

Considering the situation in the country three studies were conducted as outlined below:

1. Committee Chaired by Mr. Hazari, 1965.

It studied the industrial licensing process and concluded that it had resulted in disproportionate

growth of some big business houses in India.

2. Committee setup in 1960 under Professor Mahalonobis

It studied the distribution and level of Income in India. Committee presented that the top 10 % of

the population in India cornered as much as 40 % of Income.

3. Monopolies Inquiry commission (MIC), April 1964

Chairman Mr. Gupta presented in the report that there was concentration of economic power in

the form of product wise and industry wise. Few Industrial houses were controlling a large

number of companies and there existed a large scale restrictive and monopolistic trade

practices.

The bill drafted by MIC became the ―Monopolies and Restrictive Trade Practices Act‖

1969 and was enforced from June 01, 1970. Cousin of this act named “Foreign Exchange

Regulation Act” was born in 1973.

There was lot of criticism around MRTP Act that it prohibited growth. A parallel legislation known

as consumer protection act, 1986 has also come into being mainly to address customer

complaints.

Articles 38 and 39 of the Constitution of India mandate that the State shall strive to promote the

welfare of the people by securing and protecting as effectively, as it may, a social order in which

justice – social, economic and political – shall inform all the institutions of the national life, and

the State shall, in particular, direct its policy towards securing that the ownership and control of

material resources of the community are so distributed as best to sub serve the common good;

and that the operation of the economic system does not result in the concentration of wealth

and means of production to the common detriment. These were the basic principles behind

MRTP Act 1969.

Transition from MRTP Act 1969 to Competition Act 2002

It was in 1991 that India took the Initiative in favor of economic reforms consisting essentially of

Liberalization and de-regulation. In short India entered into the phase of Liberalization,

privatization and Globalization. Post 1991 many changes were introduced to make the market

driven by competitive forces, so that there could be incentives for raising productivity, improving

efficiency and reducing cost. As a consequence many changes were made in the MRTP Act.

Two of the five major objectives of MRTP act namely prevention of concentration of economic

power and control of monopolies have been de-emphasized after 1991.

Example – Prior to 1991 companies with assets more than Rs. 100 Crore need to take approval

from Government for setting up new undertakings. Post 1991 such conditions were all deleted.

MRTP act post 1991 did not prohibit merger, amalgamation and takeovers. A large number of

private and public sector companies were brought under the ambit of MRTP Act.

During the administration of MRTP Act over a period of three decades there have been a large

number of rulings of Supreme court of India. Thus the wordings of existing law were considered

inadequate by judicial pronouncements, redrafting the law to inhere the spirit of the law and the

intention of the lawmakers became inevitable, and hence the new law, namely, The Competition

Act 2002.

A perusal of the MRPT act will show that there is neither definition nor even a mention of

certain offending trade practices, which are restrictive in nature like ―Abuse of

Dominance‖, ―Cartels, Collusion and Price Fixing‖, ―Bid Rigging‖ and ―Predatory

Pricing‖.

Hence a question arose if the existing MRTP act could be suitably amended instead of drafting

and bringing a new law. One strong argument in favor of enacting a new law was that there has

been drastic change in environment post 1991. Law has to fit the changing scenarios on the

economic and trade front.

In October 1999 Government of India Appointed a Committee under Mr. SVS Raghavan.

Committee submitted the report in May 2000 and parliament passed the new law in December

2002 named “The Competition Act 2002”.

MRTP Act Competition Act

1. Based on command and control regime Based on liberalized regime

2. Competition concepts not expressly

defined

Competition concepts expressly defined

3. No regulation of combinations Provides for regulation of combination

4. Has no advocacy role Provides for advocacy

5. No power to impose penalty Power to impose penalty deterrence

factor

6. No provision for Statutory authority to

seek CCI‟s opinion

Statutory authority can seek CCI‟s opinion

7. Government Departments outside its

ambit

Government Departments within its ambit

8. Reactive and rigid Proactive and flexible

9. Unfair trade practices omitted Unfair trade practices covered

10. Rule of law approach Rule of reason approach

11. Form based Effect based

The Competition Act details

Need for Competition

Competition is the backbone of Economy. Lack of competition results in a mass of complacency

which leads to poor products that destroy creativity and ultimately hold back the progress in the

markets. Competition is necessary for high economic growth and low unemployment. The need

arises because market can suffer from failures and distortions and various players can resort to

anti competitive activities such as cartels, abuse of dominance which adversely impact

economic efficiency and society welfare.

Fierce competition between companies both locally and globally is like a life ventilator support

system of strong and effective markets. It encourages firms to replenish rejuvenate and

innovate. Competition reduces slack, putting downward pressure on costs and providing

incentives for efficient organization of production. It helps improving quality standards.

Benefits of Competition

Competition creates efficiencies in the market place. Some of these efficiencies are as follows:

Productive efficiency: Productive efficiency is in ensuring that any time a good or service is

produced, it is done by using the smallest number of resources. Productive efficiency is closely

related to the concept of technical efficiency. A firm is technically efficient when it combines the

optimal combination of labor and capital to produce goods i.e. cannot produce more of a good,

without more inputs. An economy can be productively efficient but have very poor allocative

efficiency. Allocative efficiency is concerned with optimal distribution of resources.

Example:

If you devoted 75%of GDP to defense, you could be productively efficient, but these

would be a very unbalanced economy.

We do not measure the efficiency of a hairdresser by the number of cuts per hour or of a

hospital by the number of cuts per hour.

Allocative efficiency: Allocative efficiency interest is in ensuring that the available resources

are used in a satisfactory manner.

Example:

An economist may say in India a reduction in key interest rates will help boost the

economy and more liquidity.

Dynamic efficiency: Dynamic efficiency is concerned with the productive efficiency of a firm

over a period of time. Dynamic efficiency involves a trade-off.

Example:

A firm‟s investments in new machines and technology may enable an increase in labor

productivity although it may involve higher cost in short run.

Better relationships with unions that help to introduce new working practices

The benefits of competition work through the economy by enhancing allocative, productive and

dynamic efficiency, and thereby benefit the consumers, businesses and the government.

CONSUMERS

Wider choice of goods, services and suppliers

Better quality and improved value for money

BUSINESSES

Level playing field; redressal against anti-competitive practices

Competitively priced inputs

Greater productivity and ability to compete in global markets

GOVERNMENTS

(Central and State)

Optimal realization from sale of assets

Savings of public money in procurement

Enhanced availability of resources for social sector

Need for Competition Act

In today‟s dynamic world when local companies are going global it is increasingly needed to be

at the top. Any company will not survive if it does not compete. Case in point, the mills which

were once a backbone of Mumbai economy, are completely decimated. Thus it was felt for a

need of a comprehensive competition act. The Monopolies and Restrictive Trade practices act

1969 had become obsolete. There was a need of competition act keeping in mind the ever-

changing dynamics both with and outside the country

However it is important to note that competition can also sow the seed of its own

destruction i.e. when encouraged to compete, successful entrepreneurs may achieve positions

where they are able to prevent others from competing and there by damage the process as a

whole. Therefore the primary of competition law is to remedy some of the situations where the

activities of one firm or two lead to the breakdown of the free market system, or to prevent such

a breakdown by laying down rules by which businesses can rival with each other.

Thus competition laws strive to achieve two things. The first, ensure that wherever

competition already exists, it would deliver the goods efficiently. Thus it defines rules for

the firms to compete in the market place. Secondly, wherever competition doesn’t already

exist, it would be encouraged to exist.

Competition Act 2002 seeks to ensure fair competition in India by prohibiting trade

practices which cause appreciable adverse effect on competition in markets within India and for

this purpose provides for establishment of a quasi-judicial body to be called the competition

commission of India which shall also undertake competition advocacy for creating awareness

and imparting training on competition issues.

The act aims at curbing negative aspects of competition through the medium of CCI. Various

regulators are present to ensure its implementation:

SEBI NSE,BSE

Director general of civil aviation Aviation

Telecom regulatory of India Telecom commission

Insurance Regulatory and development authority Insurance sector

Forward Market commission Forward and future sector

Reserve bank of India Monetary policy

The Competition Act, defined:

An Act to provide, keeping in view of the economic development of the country, for the

establishment of a Commission to prevent practices having adverse effect on

competition, to promote and sustain competition in markets, to protect the interests of

consumers and to ensure freedom of trade carried on by other participants in markets, in

India, and for matters connected therewith or incidental thereto.

This act is applicable to the whole of India except the state of Jammu and Kashmir

Competition Act 2002 is comprised of the following:

1. Anti-Competitive Agreements:

“A dynamic and competitive environment, underpinned by sound competition law and

policy is an essential characteristic of a successful market economy”.

“People of the same trade seldom meet together, even for merriment and division, but

the conversion end in a conspiracy against the public, or in some contrivance to raise

prices.”

The above statement of Adam Smith makes it abundantly clear for a need to have a proper

regulatory mechanism for the prevention of anti -competitive agreement which not only affect

the market economy leading to monopolistic approach but also victimizes the consumers and

thereby cause harm to the entire economy creating hindrance to the competition in the market.

Anticompetitive agreements can be said to be agreements that negatively or adversely

impact the process of competition in the market.

OECD/ World Bank Glossary:

According to an OECD/World Bank Glossary, Anti-competitive practices refer to a wide range

of business practices that a firm or group of firms may engage in order to restrict inter-firm

competition to maintain or increase their relative market position and profits without necessarily

providing foods and services at a lower cost or higher quality. It may also be to the

disadvantage of the consumer as the products and services may be available at a higher cost

than are available in a competitive market and also may be of a lower quality.

Prohibition of anti-Competitive Agreements has been provided under Section 3 Chapter II of the

Act dealing with prohibition of certain agreements, abuse of dominant position and regulation of

combinations of the Act. The provisions of the Competition Act relating to anti-competitive

agreements were notified on 20th May, 2009.

The Act is in line with current policies of GOI with growing national and international trends with

regard to competition both at national and international level. It aims at fostering competition

and promoting Indian markets against anti-competitive practices by enterprises. Competition

laws in India like in any other jurisdiction prohibits all agreements which restrict freedom of trade

and cause consumer harm by way of limiting production and distribution of goods and services

and fixing prices higher than normal.

Example:

A cartel of producers, traders, together may fix prices higher than normal leading

to loss in consumer welfare.

Cement cartelization by Indian cement companies

Principle objective of supplier of goods and services who are in a position to manipulate the

market is to maintain their profits at pre-determined levels. They seek to achieve through this a

various means. Agreements for price-fixing, limiting supply of goods or services, dividing the

market, etc. are the usual modes of interfering with the process of competition and ultimately

reducing or eliminating competition. Where competition is adversely affected to an appreciable

extent, such agreements would be anti-competitive.

Types of Anti-Competitive Agreements:

Competition laws in all over the world usually places anti-competitive agreements in two

categories namely –

Horizontal agreements

Vertical agreements

Horizontal agreements are generally viewed more seriously than the vertical agreements. The

former, namely the horizontal agreements are those among competitors and the latter, namely

the vertical agreements are those relating to an actual or potential relationship of purchasing or

selling to each other. A particularly pernicious type of horizontal agreements is the cartel.

Vertical agreements are pernicious, if they are between firms in a position of dominance. Most

competition laws view vertical agreements generally more leniently than horizontal agreements,

as horizontal agreements are more likely to reduce competition than agreements between firms

in a purchaser seller relationship.

Horizontal Agreements:

Agreements prohibited under section 3(3) are described as horizontal agreements for they apply

to similar or identical trade of goods or provision of services. The Act under this sub-section

presumes following activities as to have appreciable adverse effect on competition.

1. Agreement between:

Enterprises

Associations of enterprises

Persons

Associations of persons

Person and enterprise

2. Practice carried by:

Association of enterprises

Association of persons

3. Decision taken by:

Association of enterprises

Association of persons

4. Cartels:

Are engaged in identical or similar trade of goods or provision of services including

cartels only if any of their activity:-

Determines either directly or indirectly purchase or sale prices.

Limits or controls production, supply, markets, technical development, investment or

provision of services.

Shares the market or source of 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;

Directly or indirectly results in bid rigging or collusive bidding

Cartels

The Act defines Cartel under section 2(c) it says ―cartel includes an association of

producers, sellers, distributors, traders or service providers who, by agreement amongst

themselves, limit, control, or attempt to control the production, distribution, sale or price

of, or, trade in goods or provision of services.

Activities of cartels results in collusion. Collusion refers to combinations, conspiracies or

agreements among sellers to raise or fix prices and to reduce output in order to increase profit

Statistical Report on Cartels:

OECD and other organizations have estimated the harm caused by cartels in billions of dollars

each year. Developing countries are particularly vulnerable.

A World Bank paper estimated that in 1997, developing countries imported US $ 81.1

billion worth of goods from industries which witnessed price fixing conspiracies

during 1990s; this represents 6.7% of the imports and 1.2% of the GDP in the

developing countries.

Japan & USA respectively estimated that cartels raised prices by 16.5% and 60-70%.

A number of countries reported price declines after anti-cartel enforcement, e.g.,

Sweden and Finland reported 20-25% fall in asphalt, UK 30% in football replica

kits, and Israel 40-60% in envelopes.

On average, over-charges are estimated between 20-30% with higher over-charges in

case of international cartels.

Cartels have variously been described as ―highway robbery and the ―supreme evil of anti-

trust. Competition laws generally treat cartels as per se violations, not requiring actual proof of

harm.

Vertical Agreements:

Vertical Agreements are agreements between persons at different levels of the production chain

such as an agreement between a manufacturer and a distributor.

Any agreement amongst enterprises or persons at different stages or levels of the production

chain in different markets, in respect of production, supply, distribution, storage, sale or price of,

or trade in goods or provision of services shall be an agreement in contravention of sub-section

(1) if such agreement causes or is likely to cause anti-competitive practices.

Examples:

Tie-in arrangement - includes any agreement requiring a purchaser of goods, as a

condition of such purchase, to purchase some other goods

Example: Case- Tying of Apple products with AT&T (2007)

When Apple initially released the iPhone on June 29, 2007, it was sold exclusively with

AT&T contracts in the United States. To enforce this exclusivity, Apple employed a software

"lock" that ensured the phone would not work on any network besides AT&T's and any user

who tried to unlock or otherwise tamper with the locking software ran the risk of rendering

their iPhone permanently inoperable. This caused complaints among many consumers, as

they were forced to pay an additional early termination fee of $175 if they wanted to unlock

the device safely for use on a different carrier.

Companies such as Google complained that Apple was tying encourage a closed access

based wireless service. In October 2007 a class-action lawsuit was filed against Apple,

claiming that its exclusive agreement with AT&T violates California antitrust law.

In July 2010, federal regulators clarified the issue when they determined it was lawful to

hack (or in other terms, "jail break") the iPhone, declaring that there was no basis for

copyright law to assist Apple in protecting its restrictive business model.

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

Example: Case - FTC vs. Transition Optical Inc. (2010)

Transitions Optical, Inc is a leading manufacturer of photochromic lenses. The Federal

Trade Corporation brought a suite against Transition Optical to prevent it from using

allegedly anticompetitive practices to maintain its monopoly and increase prices.

The FTC charged that the company illegally maintained its monopoly by engaging in

exclusive dealing at nearly every level of the photochromic lens distribution chain. First,

Transitions refused to deal with manufacturers of corrective lenses, known as “lens casters,”

if they sold a competing photochromic lens. Further down the supply chain, Transitions used

exclusive and other agreements with optical retail chains and wholesale optical labs that

restricted their ability to sell competing lenses. According to the FTC‟s complaint,

Transitions‟ exclusionary tactics locked out rivals from approximately 85 percent of the lens

caster market, and partially or completely locked out rivals from up to 40 percent or more of

the retailer and wholesale lab market.

In settling the agency‟s charges, Transitions has agreed to a range of restrictions, including

an agreement to stop all exclusive dealing practices that pose a threat to competition. These

provisions will end its allegedly anticompetitive conduct and make it easier for competitors to

enter the market.

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

Example:

A Pharmaceutical company signs an agreement with a local pharmaceutical company to

manufacture tablets of a particular patent. The patent right is with the MNC company. This

way it enters into an exclusive distribution agreements

In the year 2010 Ranbaxy had the exclusivity for the drug Lipitor with U.S F.D.A.

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

Example: Case - Raymond Woolen Mill vs. Director General, Investigation &

Registration (2008)

It was alleged that Raymond had indulged in restrictive trade practices. The complainant

M/s. Roop Milan stated that they were an established retail dealer for Raymond since 1982

and that were receiving regular supplies of blazers, suits, safaris, trousers etc. till December

1986. In 1986 Raymond came up with a scheme that material like suits/safaris/blazers etc.

will be supplied only if substantial orders were placed for readymade trousers. This put

tremendous pressure on the dealers to accept higher quantity of trousers than required and

when M/s Roop Milan showed his unwillingness to accept the large quantity of trousers, his

dealership was terminated and the security deposit was refunded to him.

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 is clearly stated that prices lower than those prices may be charged.

Example:Case - All India Tyre Dealers Federation vs. Tyre Manufacturers (2012)

This case brought to light that the terms of the agreement between Bridgestone and Tyre

Dealers put a restriction on the dealers that they would not sell products of Bridgestone

competitors. Under these agreements, Bridgestone also reserved the right to control the

retail price of its products. The dealer was obliged not to sell the goods of the company

above or below the price fixed by Bridgestone. This amounts to resale price maintenance

Unfair Trade Practices

Any trade practice whose harm outweighs its benefits. It can be defined as using various

deceptive, fraudulent or unethical methods to obtain business. Unfair trade practices include

misrepresentation, false advertising, tied selling and other acts that are declared unlawful by

statute. It can also be referred to as deceptive trade practices.

Various types:

Subjecting a consumer to undue pressure or influence to buy

o Example: A salesperson spends four hours in a consumer‟s home trying to sell a

vacuum cleaner.

Taking advantage of a consumer’s inability to understand a consumer transaction.

o Example: A seller convinces a consumer who can‟t speak or read English to sign

a multi-page contract

Representing that goods have or have not been used to the extent that is different

from the fact

o Example: The seller tells a consumer that a car has 50000 kilometers and true

mileage on it is 100,000 kilometers

Representing that goods are available in a particular quantity if they are not.

o Example: A store advertises it has 35 stereos for sale when in fact is has one

stereo in sale.

Restrictive Trade Practices

Any trade practice that tends to block the flow of capital into production and also bring in

conditions of delivery to affect the flow of supplies leading to unjustified cost.

Example: A gas distributor insisted his customers to buy gas stove as a condition to give gas

connection. It was held that it was a restrictive trade practice.

However, where there is no such precondition and the buyer is free to take either product, no

tying arrangement could be alleged even though the seller may offer both the products as a

single unit at a composite price.

Example: A is a furniture dealer. He is selling Sofa at Rs.20000 and Bed at

Rs.15000. He has an offer that whoever will buy Sofa and Bed both, he will charge Rs.30,000

only. Here the choice is open to the customer to buy the products single or composite. This is

not a restrictive trade practice.

Rules Applied:

After taking all the relevant factors into account in a given statute, there should be still some

principles on which one can arrive at a conclusion on the effect of the anti-competitive conduct

or practice on competition

The Rule of Reason:

The „rule of reason’ approach weighs the reasons of a certain action taken and the economic

benefits and costs of that action before coming to a judgment. Under the rule of reason, the

effect on competition is found on the facts of a particular case, and its effect on the market

condition, and existing competition including the actual or probable limiting of competition in the

relevant market.

If the indication is very strong and there are no obvious efficiencies from the agreement and no

good explanation that the agreement is the response of market or is helping to deliver

something better or at lower prices, there is a presumption of anti-competitive effects and the

defendant must come forward to show that there is no market harm. If there is no presumption,

the plaintiff must produce more evidence of market power or its increase.

Example on Rule of Reason:

Consumer Online Foundation V/s Tata sky limited, Dish T.V. India Limited, Reliance Big

T.V Ltd, Sun Direct TV Pvt Ltd. (24 March 2011)

Observation & Ruling:

The complainant has alleged that the four Direct to Home (DTH) service providers are limiting

competition among themselves, forcing the consumers to buy bundled hardware and creating

entry barrier for new hardware manufacturers

The following rulings were observed:

To minimize the information asymmetry by making the STBs and other necessary

hardware available through the mode of outright purchase or on rental basis

To change the business models

To provide free to air channels with only administrative cost

The Per Se Rule:

Per se„ is a Latin phrase meaning ―in itself ―in legal terms it basically means that the courts

will regard a certain action to always be harmful and therefore it must only be proved that the

defendant has committed the action to find him guilty.

The above rule has been explained in Indian context. It is one of the landmark cases of the CCI

in the matter of Neeraj Malhotra V Deutsche Post Bank Home Finance Ltd& Others

Example: Case: Neeraj Malhotra V Deutsche Post Bank Home Finance Ltd &Others(2

December 2010)

Observation & Ruling: To examine the issues of anti- competitive agreements and abuse of

dominance by banks while charging prepayment penalty on loans.

In India there is no concept of per se rule under completion law as such. However, Evidence

Act, 1872 under section 4 clause 3 provides for ―conclusive proof which gives an artificial

probative effect by law to certain facts. No evidence is allowed to be produced with a view to

combating that effect. The per se rule has to be taken in co-relation with the term “shall be

presumed”.

Pharmaceutical Sector As an example for anti-competitive agreements:

Major Players In the pharmaceutical industry:

No. Name of Company Net Sales

1 Ranbaxy Labs Rs 7686.59 crore

2 Cipla Rs 6977.50 crore

3 Dr Reddy Labs Rs 6686.30 crore

4 Lupin Rs 5364.37 crore

5 AurobindoPharma Rs 4284.63 crore

6 Sun Pharma Rs 4015.56 crore

7 Cadila Healthcare Rs 3152.20 crore

8 Jubilant Life Rs 2641.07 crore

9 Wockhardt Rs 2560.16 crore

10 Ipca Laboratories Rs 2352.59 crore

The regulatory system can be divided on the basis of

Licensing

Pricing

Regulators:

Central Drug Standards and control organization

National Pharmaceutical Pricing Authority

Drug controller general of India

Drug prices control order

The main competition concerns in the industry are:

Information asymmetry.

Consumers are totally dependent on the market intermediaries.

Collusive agreements between:

• Manufacturer – Doctor - (Incentives for Prescribing, Irrational Combinations,

Prescribing Expensive Brands)

• Manufacturer – Pharmacist – (Colluding to clear a, particular drug despite availability of

cheaper variants)

• Tied Selling Practices - Manufacturer – Doctor –Pharmacist

• Manufacturers and Hospitals

The various intermediaries at different levels of the supply chain do not compete with each other

and act collectively under the umbrella of trade associations solely to further their business

interests which violates section 3 of the Act. This restricts the availability of drugs and

competitive prices for the end users.

Examples: Case - M/s Santuka Associates Pvt. Ltd. vs. All India Organization of Chemists

and Druggists (19 February 2013)

Observations & Rulings:

DG has observed that the issue of NOC clearly limits the market / supply of pharma products

and thus the conduct of AIOCD and its affiliates being signatories to the agreements regarding

the requirement of NOC for appointment of stockiest, has to be presumed in contravention of

the Act as the prices of drugs are directly or indirectly getting fixed and are not getting

determined by the inter play of market forces.

Case: Varca Druggist & Chemist &Ors. Vs. Chemists and Druggists Association, Goa (11

June 2012)

Observations & Rulings:

The commission is of the view that CDAG not only limit and control supply of drugs in the

market through a system of PIS approvals and limit and control the number of players by

insisting on need of its NOC for appointment of stockiest but also through its guidelines fixed

trade margins for the wholesaler and retailer which, in turn, results into determination of sale

price of drugs in the market.

2. Abuse of dominance

Section 4 of the Competition Act covers the different aspects of abuse of dominant position. It

prohibits abuse of dominance by an enterprise or the group.

Three Stage process of determining Abuse of dominance

Stage 1 - Determination of Relevant Market

Stage 2 - Dominance of the enterprise/group in the relevant market is ascertained

Stage 3 - "Abuse" by the dominant enterprise in the relevant market is determined

Abuse of dominant position by an enterprise or the group is a serious violation under the Act.

CCI has vast powers in case of a dominant enterprise found abusing its dominance including

imposing huge penalties.

Stage 1 - Determination of Relevant Market

CCI determines the relevant market with reference to

i) Relevant Product Market

ii) Relevant Geographic Market

The relevant product market means “a market comprising all those products or services,

which are regarded as inter-changeable or substitutable by the consumer, by reason of

characteristics of the products or services, their prices and intended use”

So if the characteristic is price then relevant product market comprises of all those products &

services that the consumer would switch to, if the price of the product relevant to the

investigation were to increase.

Factors while determining relevant Product Market

Physical characteristics or end-use of goods

Price of goods or services

Consumer preferences

Exclusion of in house production

Existence of specialized products

Classification of industrial products

Example for abuse of dominance in the Product Market:

Coal India Limited (CIL) Vs Sponge Iron Manufactures Association (SIMA)

CCI observed that SIMA member companies were totally dependent on CIL for the

supply of coal for running their sponge iron plants. CIL enjoys a virtual monopoly over

the production and supply of coal as it was producing over 80% of the coal in India.

Taking advantage of its dominant position, CIL forced its consumers to enter into

extremely one-sided, anti-competitive Fuel Supply Agreements (FSA) and the

Memorandum of Understandings (MOUs) under which the consumers have no

bargaining power. It was alleged that CIL was not adhering to the terms and conditions

in the FSA/MOUs and conducting themselves in a manner detrimental to the interest of

the SIMA. The terms and conditions were also found to be heavily loaded in the favor of

CIL.

Thus as per Section 4 of the Act, CCI concluded that there existed a prima facie case of

abuse of dominance.

Relevant geographic market is defined in terms of “the area in which the conditions of

competition for supply of goods or provision of services or demand of goods or services are

distinctly homogenous and can be distinguished from the conditions prevailing in the

neighboring areas”.

Thus it means the identification of the geographical area within which competition takes place.

Relevant geographical markets can be local, national or global depending on the facts of the

case.

Factors while determining relevant Geographic Market

Regulatory trade barriers

Local specification requirements

National procurement policies

Adequate distribution facilities

Transport costs

Language

Consumer preferences

Need for secure or regular supplies or rapid after-sales services

Example for abuse of dominance in the Geographic Market:

Belaire Owners Association ("Informant') vs. DLF Limited & Ors. ("Opposite Parties")'

DLF announced the launch of a Group Housing Complex, known as “The Belaire” consisting of

5 multi-storied residential buildings to be constructed in DLF City, Gurgaon, Haryana. In

accordance with the initial plans/advertisements, each of the five multi-storied buildings would

consist of only 19 floors with a total of 368 apartments to be constructed within a period of 36

months. However, it imposed highly arbitrary, unfair and unreasonable conditions on the

Informant.

The Informant submitted that DLF had used its position of strength in dictating the terms of the

Apartment Buyers Agreement ("Agreement') and imposed unilateral and one-sided clauses.

DLF had excluded itself from any obligations and liabilities; and on the contrary has compelled

the Informant to agree to all the terms of the Agreement in toto. The Informant has alleged that

the various clauses of the agreement and the action of DLF pursuant thereto are prima facie

unfair and discriminatory, thus attracting the provisions of Section 4 (2) (a) of the Acts.

The CCI on the basis of the DG report framed four major issues for consideration which are as

follows:

Issue 1: Applicability of the provisions of the Act to the facts and circumstances of the instant

case

Here, the meaning of 'service' as envisaged under the Act is of very wide magnitude and

is not exhaustive in application, thereby including the activities undertaken by DLF

within its ambit.

Issue 2: Meaning and definition of the term relevant market, in the context of section 4 read with

section 2 (r), and section 19 of the Act

Here, the relevant market is the market for services of developer/builder in respect of

high-end residential accommodation in Gurgaon.

Issue 3: Whether DLF is occupying a dominant position in the above relevant market?

It was held that DLF had the highest market share (45%), vis-a-vis the market share of the

nearest competitor (19%) which was more than twice of its competitor, leading to hardly

any competitive constraints. The CCI while analyzing several factors held that DLF due to

its level of vertical integration, presence in real estate sector and financial strength was

way ahead of its competitors.

Issue 4: If yes, whether DLF has abused its dominant position in the relevant market?

The CCI pronounced DLF Limited ("DLF") guilty for grossly abusing its dominant market

position in the concerned relevant market and imposing unfair conditions in the sale of

flats/apartments to home buyers/consumers in contravention of the provisions of the

Competition Act, 2002

Outcome of the Case

CCI vide order dated 12.08.2011, besides imposing penalty of Rs. 630 Crores on DLF Ltd.

under section 27(b) of the Act, at the rate of 7% of the average turnover of DLF for the

last three financial years, also passed the following directions under section 27(a) of the Act:

i. To cease and desist from formulating and imposing such unfair conditions in its

Agreement with buyers in Gurgaon.

ii. To suitably modify unfair conditions imposed on its buyers as referred to above,

within 3 months of the date of receipt of the order.

Stage 2 - Dominance of the enterprise/group in the relevant market is ascertained

As per the Act, dominance refers to a position of strength which

i) Enables an enterprise to operate independently of competitive forces, or,

ii) Enables an enterprise to affect its competitors or consumers or the relevant market

in its favor.

There are many enterprises which are dominant in the relevant market in terms of market share,

product category, prices etc. but that does not mean that it is against the law. By being a mere

dominant player in the market is not bad per se, but its abuse is.

Example: TCS is a market leader in providing IT services and Maruti Suzuki has the largest

market share in the small and mid size vehicles segment, but as long as they are not exploiting

their market power and distorting competition, then their conduct and actions are not actionable

under the Act. Thus dominance of an enterprise or a group is required to be assessed in a

relevant market determined in the context by CCI.

Factors for Determining Dominant Position

Dominance has been traditionally defined in terms of market share of the enterprise. However, a

number of other factors play a role in determining the influence of an enterprise or the group in

the market which are as follows:

market share of the enterprise

the size and resources of the enterprise

size and importance of competitors

economic power of the enterprise

vertical integration of the enterprise or sale or service network of such enterprise

dependence of consumers on the enterprise;

extent of entry and exit barriers in the market

countervailing buying power

market structure and size of the market

source of dominant position viz. whether obtained due to statute or by virtue of being a

government company or a public sector undertaking or otherwise

social costs and obligations

Any other factor which the Commission may consider relevant for the inquiry.

Stage 3 - "Abuse" by the dominant enterprise in the relevant market is determined

Abuse is stated to occur when an enterprise or the group uses its dominant position in the

relevant market in an exclusionary or/and an exploitative manner. The objective is to eliminate

or discipline an existing competitor or to deter future entry by new competitors; with the result

that competition is prevented or lessened.

Abuse of Dominance occurs if an enterprise/ group engages in the following conducts:

Conduct 1 - Directly or indirectly imposing unfair or discriminatory condition/price (including

predatory price) in purchase or sale of goods or service.

Example: Small retailers Vs e-commerce companies

This is an ongoing very recent example where a few brick & mortar retailers in Bangalore have

written to the CCI alleging that e-commerce companies are undercutting them with predatory

pricing. Predatory pricing means the sale of goods or provision of services, at a price which is

below the cost, with a view to reduce competition or eliminate the competitors. These small

retailers are accusing of selling goods below the costs in order to gain market share and reduce

competition from retailers. However how much of these accusations are viable is still under

investigation, as to prove that it is predatory pricing; the small retailers need to prove that the e-

commerce companies are selling below costs. Also predatory pricing makes sense if the e-

commerce had a monopoly. However in this case they are fighting against a business model

and not a single company.

Conduct 2 - Limiting or restricting production of goods or provision of services or market.

Conduct 3 - Limiting or restricting technical or scientific development relating to goods or

services to the prejudice of consumers.

Conduct 4 - Denying Market Access in any manner

Conduct 5 - Making 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.

Conduct 6 - Using the dominant position in one relevant market to enter into, or protect, other

relevant market.

3. Combinations regulations

Combination Definitions:

Broadly, combination under the Act means acquisition of control, shares, voting rights or assets,

acquisition of control by a person over an enterprise where such person has direct or indirect

control over another enterprise engaged in competing businesses, and mergers and

amalgamations between or amongst enterprises when the combining parties exceed the

thresholds set in the Act. The thresholds are specified in the Act in terms of assets or turnover in

India and outside India.

Entering into a combination which causes or is likely to cause an appreciable adverse effect on

competition within the relevant market in India is prohibited and such combination shall be void.

Horizontal combinations are those that are between rivals and are most likely to cause

appreciable adverse effect on competition.

Vertical combinations are those that are between enterprises that are at different stages of the

production chain and are less likely to cause appreciable adverse effect on competition.

Conglomerate combinations are those that are between enterprises not in the same line of

business or in the same relevant market and are least likely to cause appreciable adverse effect

on competition.

The combination under the Act is usually expected to take place before it comes into effect with

an idea of preventing a possible anti-competitive behaviour which may adversely affect the

consumers. Combinations likely to have an anti-competitive effect can be permitted after such

effects are removed by modifications.

Thresholds for Combinations under the Act:

The current thresholds for the combined assets/turnover of the combining parties are as follows:

Individual: Either the combined assets of the enterprises are more than 1,500 crores in

India or the combined turnover of the enterprise is more than 4,500 crores in India. In

case either or both of the enterprises have assets/ turnover outside India also, then the

combined assets of the enterprises are more than US$ 750 millions, including at least

750 crores in India, or turnover is more than US$ 2250 millions, including at least 2,250

crores in India.

Group: The group to which the enterprise whose control, shares, assets or voting rights

are being acquired would belong after the acquisition or the group to which the

enterprise remaining the merger or amalgamation would belong has either asset of more

than 6000 crores in India or turnover more than 18000 crores in India. Where the group

has presence in India as well as outside India then the group has assets more than US$

3 billion including at least 750 crores in India or turnover more than US$ 9 billion

including at least 2250 crores in India.

The term Group has been explained in the Act. Two enterprises belong to a “Group” if

one is in position to exercises at least 26 per cent voting rights or appoint at least 50 per

cent of the directors or controls the management or affairs in the others. The

government has exempted “Group” exercising less than fifty per cent of voting rights in

other enterprise from the provisions of section 5 of the Act for a period of five years.

In exercise of the powers conferred by the Competition Act, 2002, the Central

Government, in public interest, exempts an enterprise, whose control, shares, voting

rights or assets are being acquired has either assets of the value of not more than 250

crores in India or turnover of not more than 750 crores in India from the provisions of

section 5 of the said Act for a period of five years.

In India

Applicable To

Assets Turnover

Individual Rs.1,500 cr. Rs.4,500 cr.

Group Rs.6,000 cr. Rs.18,000 cr.

In India &

Outside

Individual Parties

Assets Turnover

Total Minimum

Indian Component

Total

Minimum Indian

Component out of Total

$750 m

Rs.750 cr. $2,250

m Rs.2,250 cr.

Group $3 bn Rs.750 cr. $ 9 bn Rs.2,250 cr.

Combination Notice

Any combination which qualifies under this Act needs to give mandatory pre-combination

notification to the Commission. Any person/ enterprise proposing to enter into a combination

needs to notify the Commission in the specified form disclosing the details of the combination

within 30 days of the approval of the proposal for combination. In case, a notifiable combination

is not notified, the Commission has the power to inquire into it within an year of the combination.

The Commission also has the power to impose a fine which may extend to one per cent of the

total turnover or the assets of the combination, whichever is higher.

Example: Combination of Jet Airways & Etihad Airways. The Jet Airways & Etihad Airways are engaged in the business of providing international air

transportation services In investment agreement Etihad had shown interest in having 24% stake

in in Jet Airways to enhance the Airlines business through Joint initiative. Etihad‟s acquisition of

24% stake & right to nominate two directors out of six shareholders directors, including the

Board of Director of Jet.

Direction of the CCI

Considering the facts on record and the details provided in the notice, the Commission is of the

opinion that the proposed combination is not likely to have appreciable adverse effect on

competition in India and therefore, the Commission hereby approves the same.

It is however to be noted, that the Commission is granting the present approval, under section

31(1) of the Act, and that such approval is being granted, pursuant to the underlying competition

assessment, based upon the information/details provided by the Parties. This approval should

not be construed as immunity in any manner from subsequent proceedings before the

Commission for violations of other provisions of the Act.

This order shall stand revoked if, at any time, the information provided by the Parties is found to be incorrect.

Example: Combination Tata Steel & Corus Group:

On January 31st 2007 Tata Steel conducted one of the biggest cross border merger deal by

acquiring the anglo-dutch steel company, Corus Group Plc. for $ 13.70 Billion. The merged

company Tata-Corus employs 84000 people across 45 countries. It has a capacity to produce

27 million tons of steel per annum, making it fifth largest steel producer in the world. The merger

also gave Tata Steel access to the Corus strong distribution network in Europe.

4. Competition Advocacy (Section 49)

The mandate of the Competition Commission of India („CCI‟) needs to extend beyond merely

enforcing the Competition Law. It needs to participate more broadly in the formulation of the

country‟s economic policies, which may adversely affect competitive market structure, business

conduct and economic performance. The CCI, therefore, needs to assume the role of

competition advocate, acting proactively to bring about Government policies that lower barriers

to entry, promote de-regulation and trade liberalization and promote competition in the market

place. There is a direct relationship between competition advocacy and enforcement of

Competition Law. The aim of Competition advocacy is to foster conditions that will lead to a

more competitive market structure and business behaviour without the direct intervention of the

Competition Law Authority, namely the CCI.

A successful competition advocacy can be viewed in terms of the following:

1. CCI must develop relationship with the Ministries and Departments of the Government,

regulatory agencies and other bodies that formulate and administer policies affecting demand

and supply positions in various markets. These initiatives will encourage communication and a

search for alternatives that are less harmful to competition and consumer welfare

2. CCI should encourage debate on competition and promote a better and more informed

economic decision making

3. Competition advocacy must be open and transparent to safeguard the integrity and capability

of the CCI

4. Competition advocacy can be enhanced by the CCI establishing good media relations and

explaining the role and importance of Competition Policy / Law as an integral part of the

Government‟s economic framework.

Promotion of Competition Advocacy and creation of awareness about competition

issues:

i) Undertake programmes, activities etc. for the promotion of competition advocacy and creation

of awareness about competition issues in India and abroad

ii) Constitute Advocacy Advisory Committee with a view to have expert and stakeholder

participation and consultation, on continuous basis, to carry forward the agenda of competition

advocacy and creation of awareness about competition issues

iii) Develop and disseminate advocacy literature with a view to promote competition advocacy

and create awareness about competition issues.

iv) Make extensive use of the media, both print and electronic, for promotion of competition

advocacy and creation of awareness on competition issues, and convene media meets, issue

press notes, arrange publication and dissemination of articles/news, release advertisements

and undertake other publicity related activities on competition issues

v) Interact with the organizations of stakeholders, academic community, sectoral regulators,

Central and State Governments, Civil society and other organisations concerned with

competition matters and encourage debate on competition and promote a better and more

informed economic decision making

vi) Conduct studies and market research for the purpose of competition advocacy and creation

of awareness about competition issues

vii) Take up the role of a competition advocate and proactively interact with the Central and

State Governments and other bodies in legislative policy and other areas, such as, trade

liberalization, economic regulation, state aids, disinvestments; to bring about policies that lower

barriers to entry, promote de-regulation and trade liberalization and promote competition in the

market place.

viii) Encourage the academic and professional institutions to include competition law and policy

in the curricula administered by them

ix) Encourage undertaking activities, programmes, studies, research work etc. relating to

competition issues and may support such endeavours financially

For Example: Initiatives of the CCI

The Commission has been in past engaged in undertaking advocacy with ministries,

regulators, state governments and other authorities.

o The Commission has given its opinion on the draft of

Petroleum and Natural Gas Regulatory Bill, 2005

Warehousing (Development and Regulation) Bill, 2006

Indian Post Office (Amendment) Bill, 2007

the Shipping Trade Practices Bill, 2007

o The Commission has also given its views on regulatory policies and practices in

the fields of banking, telecommunications and intellectual property rights.

o Presentations on Competition law and policy to Ministries

In pursuance of creating awareness among stakeholders the Commission has held a

series of lectures, seminars and conferences dedicated to the various issues related to

competition in the economy :

Year Consumers Industries Students Legal

Practitioners

Total

2008- 09 4 4 3 - 11

2009- 10 - 1 1 8 10

2010- 11 1 13 3 9 26

2011- 12 8 9 9 3 29

Total 13 27 16 20 76

Publication of Advocacy Literature on following topics:

o An Overview of the Competition Act

o Cartels

o Bid Rigging

o Abuse of Dominance

o Combinations

o Competition Compliance

o How to File Information

o Leniency

Amendment to Competition Act 2002

Need for Amendment : The implementation of the Act, however, ran into problems on the

account of the composition of the CCI, the competition authority entrusted with the responsibility

of implementing the act. A writ petition filed in the Supreme Court challenged that the CCI is

more of a judicial body having adjudiciary powers and why the Chairman of the Commission

necessarily has to be a retired judge.

The Competition (Amendment) Act, 2007

The amendment was passed on 24 September 2007 to amend the Competition Act, 2002 (the

Act). Amendments relating to composition of Competition Commission of India (CCI),

establishment of Competition Appellate Tribunal, imposing of penalty and other administrative

powers/ changes etc. have been brought into effect from 12 October 2007/20 December 2007.

Besides the above, following amendments have also been made.

Provisions relating to abuse of dominant position extended to 'group' in addition to

'enterprise'.

The financial limits for attracting provisions relating to 'combination' modified.

For entering into a proposed 'combination', notice to the CCI shall be issued mandatorily

as against earlier requirement of optional notice.

Competition Commission to issue its order within 210 days from making of the

application.

The competition (Amendment) Act, 2009

This was done to amend section 66 of the competition act and this section was amended to

provide for continuation of the MRTP commission for 2 years to deal with the pending cases

under the MRTP act and to empower Competition commission of India to deal with the cases

under the MRTP act and pending Unfair Trade Practice cases to stand transferred to the

National Commission establishment under the consumer protection act, 1986.

Competition Commission of India (CCI)

Administration and enforcement of the competition law requires an administrative set up. The

administrative set up should be favorable for the administration of competitive policy. The

administrative setup should take a proactive stand to be specified and adopted to promote

competition by enabling free and fair competition. The CCI in the ACT has been entrusted with

the following basic conditions

A) Administration and enforcement of competition law and competition policy to enable

economic efficiency and consumer welfare

B) Involvement proactively in government policy formulation to ensure that markets remain

fair, free open flexible and adaptable.

Functions:

1) To prevent practices having adverse effect on competition

2) To promote and sustain competition

3) To protect the interest of consumers

4) To ensure freedom of trade carried by market participants in markets in India

Principles of CCI:

The competition commission of India is being guided by the following principles in its approach

to its work:

1 To be in line with markets; have good understanding of market forces.

2 To minimize costs of compliance by enterprises and cost of enforcement by commission

3 To maintain confidentiality of business information; to maintain transparency in Commission‟s

own operation

4 To maintain a consultative approach.

5 To be a professional body, equipped with requisite skills

Administrative structure: It consists of 1 chairman and 6 members

Divisions of CCI:

Economy division

Advocacy division

Anti-trust division

Investigation division

Combination division

Capacity Building

International Co-operation

Competition Appellate Tribunal

The Competition Appellate Tribunal (COMPAT) is a quasi-judicial body constituted under the

provisions of the Competition Act, 2002, as amended by Competition (Amendment) Act, 2007.

COMPAT is headed by a Chairperson, who shall be a serving/ retired Judge of Supreme Court

of India or serving/retired Chief Justice of a High Court or qualified to be a Judge of Supreme

Court or Chief Justice of a High Court. The Members shall be eminent persons from socio-

economic fields.

COMPAT adjudicates appeals against the orders of the Competition Commission of India and

also adjudicates the claims of compensation that may arise from the findings of CCI or itself.

After the dissolution of the erstwhile Monopolies and Restrictive Trade Practices (MRTP)

Commission, the Government of India vide Ordinance dated 14.10.2010, vested the COMPAT

with powers to hear and dispose of pending cases, dealt with by the-then MRTP Commission.

About 1,825 pending cases were transferred to COMPAT, out of which 1,583 cases have been

disposed of by the end of December, 2012.

Contravention of Competition Act attracts severe consequences

Examples:

Infringement Fine/Penalty Who is liable?

Anti-competitive agreements

Penalties of up to 10% of

turnover (or 3x cartelized profits)

Enterprises who enter into

an anti-competitive agreement

Directors/officials also liable

Abuse of dominance

Penalties of up to 10% of

turnover Division of dominant enterprise

Enterprises abusing

dominant position Directors/officials also

liable

Failure to notify a reportable combination

Fine of up to 1% of combined

turnover/assets

Person or enterprise Directors/officials also

liable

Failure to comply with directions of CCI

Fines and/or imprisonment as prescribed

Compensation can also be awarded by Appellate Tribunal for loss/damage suffered by any person

Person failing to comply Directors/officials also

liable

BRICS

From an acronym conceived about 10 years ago, BRICS countries have come a long way.

Today BRICS has taken on a life of its own: as much a sign of economic dynamism as it is a

symbol of the countries' political emergence. The BRICS countries represent 3 billion people

accounting for about 43 percent of the world population and 25 percent of the world's GDP.

Trade within the group amounts to about 17 percent of global commerce.

BRICS is a group of five major emerging economies of the world viz: Brazil, Russia,

India, China and South Africa. BRICS countries represent a fundamental change in

international competition enforcement as it has become multi polar now. Corporates around the

world have to be now aware of merger review and competition enforcement developments in

BRICS jurisdictions also. All the BRICS countries have in place modern competition regimes.

BRICS International Competition Conference (ICC) has become one of the most prestigious

conferences in the field of competition law and policy BRICS countries do have several

similarities in their trade practices and competition challenges in their domestic jurisdictions.

Starting from different backgrounds, they have made remarkable progress in putting in place

effective competition regimes and are attempting to develop their own local competition culture.

India and China have relatively new competition law and are quite young jurisdictions. Brazil,

Russia and South Africa have accomplished significant periodic legislative upgrades to their

original enabling legislations.

Competition architecture in Brazil:

In 1994, a new law established a Brazilian Competition Policy System (BCPS) consisting of

three agencies: a re-configured Administrative Council for Economic Defence (CADE, the

Economic Law Office (SDE) in the Ministry of Justice, and the Secretariat for Economic

Monitoring (SEAE) in the Ministry of Finance. In October 2011, the Brazilian Congress

approved a new antitrust and unfair competition law, which came into effect on May 29, 2012.

The Brazilian Competition System went through a major restructuring in 2012. In line with

international best practices, new competition architecture in Brazil has moved from an intricate

three-agency structure to a single autonomous body to reduce overlapping functions, accelerate

merger review, and to fortify legal certainty and contributed to modernization of Brazil‟s

competition law enforcement system.

Exemptions from the Act

The Act provides for the government to bring into force its different provisions on different dates

by a notification. Furthermore, it empowers the central government by notification to exempt

from the application of the law or any other part thereof for such period, as it deems fit:

Any class of enterprises if such exemption is necessary in the interest of security of

state or public interest

Any practice or agreement arising out of any obligation assumed by India under any

treaty / agreement with any other country or countries

Any enterprise which performs a sovereign function on behalf of the central or state

Government.

Jurisdiction of the Act

Act not just within Boundaries of India:

The Act also has a jurisdiction beyond the geographical boundaries of India. The competition

commission of India has the power to enquire into an agreement, abuse of dominant position or

combination, if it has or is likely to have an appreciable adverse effect on competition in the

relevant market in India, not withstanding that

An agreement has entered outside India;

Any party to such agreement is outside India

Any enterprise abusing the dominant position is outside India

Any party to combination is outside India

A combination has taken place outside India

Any other matter or practice or action arising out of such

Agreement or dominant position is outside India

Latest Information & Statistical Data

Hiranandani Hospital under CCI lens for monopoly abuse

The CCI is set to make an important ruling in a case involving a super-specialty hospital

in Mumbai, in the first instance of the anti-trust regulator turning its gaze towards the

under-regulated healthcare sector in India.

At the heart of the CCI report is a complaint filed by Ramakant Kini, a lawyer, against LH

Hiranandani Hospital last year. Kini is a family friend of Mumbai resident Manu Jain who,

according to the complaint, was refused maternity services by Hiranandani during the

38th week of her pregnancy because she declined to avail the stem cell banking

services offered by Cryobanks International India, with which the hospital had an

exclusive partnership. The investigative division's report held that Hiranandani, thanks to

its exclusive alliance with Cryobanks, indulged in unfair practices because the

arrangement restricts the choice of consumers and prevents competitors from providing

services to patients.

The investigative division of the CCI has concluded in a report that the hospital is a

dominant player in the field of maternity services in and around the Powai area of

Mumbai and abused its dominance by restricting the patient choice. The case assumes

significance because it casts the CCI as a quasi-watchdog in Indian healthcare.

The first half of 2013 saw the implementation of a new bilateral cooperation agreement

between India and Australia. The ACCC enhanced cooperation with the Competition

Commission of India ("CCI") by signing a Memorandum of Understanding on

Cooperation ("MOU") on June 3, 2013.

The MOU provides for sharing information on significant developments in competition

policy and enforcement developments in the respective jurisdictions. It fosters technical

cooperation activities as well as cooperate in appropriate cases, consistent with the

respective enforcement interests, legal constraints, and available resources. It is

planned to evaluate the effectiveness of the cooperation under the Memorandum on a

regular basis to ensure that the expectations and needs are being met.

Various activities undertaken by CCI during 2011-12 and the current year (up to

31.12.2012) are elaborated as under.

(A) Enforcement Activities: CCI has received a total of 311 cases, and initiated eight

cases on its own motion. It has disposed of 242 cases leaving a total of 77 cases

pending on its board. A brief picture about the status of number of cases as on

31.12.2012 is presented in Table below:

Orders passed by the Commission

Monetary Penalties

COMPAT has so far received 184 appeals against the decisions of Competition

Commission of India, including 118 appeals during the current year (up to 31.12.2012).

52 appeals have so far been disposed of by COMPAT. As on 31.12.2012, 132 appeals

against the orders of CCI are pending for adjudication in COMPAT.

The Budget allotment to COMPAT made by the Ministry of Corporate Affairs during the year

2011-12 and 2012-13 and the expenditure incurred are given in Table below:

Case Studies

Case 1

The Competition Commission of India ("CCI") imposed one fine— INR 522 million

($10 million) fine against the Board for Control of Cricket in India for an alleged

abuse of dominance.

o This case was initiated on the basis of information filed by Sh. Surinder Singh

Barmi, a cricket fan from New Delhi against Board for Control of Cricket in India

(BCCI) to the Competition Commission of India (CCI) under Section 19(1)(a) of

The Competition Act, 2002 on November 02, 2010.

o The allegations leveled by the informant centre on the following three dimensions

of organization of Indian Premier League (IPL), a Twenty 20, professional cricket

league tournament conducted by BCCI:

Irregularities in the grant of franchise rights for team ownership.

Irregularities in the grant of media rights for coverage of the league.

Irregularities in the award of sponsorship rights and other local

contracts related to organization of IPL.

The DG concluded that though BCCI is a society and supposed to be a non-profit

organization, its activities related to IPL such as grant of franchise rights, media rights

and other sponsorship rights, where huge revenue is involved, are different from so

called non-profit activities. These activities fall in the commercial sphere and the whole

tendering process for such rights is motivated by profits. Hence the Competition Act can

be applicable to it.

Having determined that BCCI is dominant in the relevant market, they made the

following findings on alleged Abuse of Dominance :

o The Commission concludes that BCCI has abused its dominant position in

contravention of Section 4(2)(c) of the Act.

o The Commission considers that the abuse by BCCI was of a grave nature and

the quantum of penalty levied and considered commensurate with the gravity of

the violation is as follows :

Name Gross

Turnover for

2007-2008

(Rs. Crore)

Gross

Turnover for

2008-2009

(Rs. Crore)

Gross

Turnover for

2009-2010

(Rs. Crore)

Average

Turnover for

3 Years*

( Rs. Crore)

Penalty @ 6%

of Average

Turnover

(Rs. Crore)

BCCI 1000.41 725.83 886.11 870.78 52.24

Case 2

Builders’ Association of India Vs Cement Manufacturers’ Association &Ors.

Brief facts: The Builder‟s Association of India on 26th July 2010 filed a case against the CMA

AND ACC, Ambuja cements ltd, Ultratech Cements, Grasim Cements( Now merged with Ultra

tech cements), JK Cements, India Cements, Madras Cements, Century textiles & Industries ltd,

Binani Cements, Lafarge India and Jaiprakash Associates.

Direction of the CCI : In cartel cases, the CCI has the power to fine parties up to three

times of its profit for each year of the continuance of the cartel or 10% of its turnover for

each year of the continuance of the cartel, whichever is higher.

The following penalties were levied

Company Penalty( INR in Crores)

ACC Ltd. 1147.59

Ambuja Cements Ltd. 1163.91

Binani Cements Ltd. 167.32

Century Textiles Ltd. 274.02

India Cements Ltd. 187.48

J.K. Cements Ltd. 128.54

Lafarge India Pvt Ltd. 480.01

Madras Cement Ltd. 258.68

Ultra tech Cement Ltd. 1175.49

Jai Prakash Associates Ltd 1323.60

Compat granted a stay regarding the collection of INR 63.07 billion ($1.04 billion) in fines

imposed on 11 cement manufacturers for coordinating prices. The stay and acceptance of the

companies' appeal of the fine was, however, conditioned upon the payment of a INR 6 billion

($100 million) penalty within one month of the ruling. In April, Compat substantially reduced the

fines imposed by the CCI against several explosives manufacturers. Although the parties'

appeals were dismissed, Compat found that the CCI had failed to consider mitigating

circumstances alleged by the parties and therefore reduced the original fine of INR 600 million

($9.89 million) by 90%

Case 3

11 Shoe Companies Penalized for Bid Rigging

In the case of M/o Commerce, Govt. of India v. M/s Puja Enterprises & Ors., a reference was

made to the CCI by the Director General-Supplies & Disposal (DGS&D), Ministry of Commerce

and Industry, Government of India with respect to a tender enquiry dated June 14, 2011 for

conclusion of new rate contracts for polyester blended duck ankle boots rubber sole. The

reference alleged bid rigging and market allocation by the suppliers, while bidding against the

above tender enquiry.

The Informant had alleged that (i) the bids made by the Opposite Parties were in a very

narrow range; (ii) most of the Opposite Parties had restricted the quantity to be supplied by

them; and (iii) most of the Opposite Parties had also fixed the maximum quantity they would

supply to a particular Direct Demanding Officer („DDO‟). The Informant contended that these

three practice were inconsistent with Section 3(3) of the Act.

After a detailed investigation, CCI held that the bidder-suppliers by quoting identical/ near

identical rates had indirectly determined prices/ rates in the Rate Contracts finalized by DG S&D

and indulged in bid rigging/ collusive bidding.

Further, CCI noted that the parties had also controlled/ limited the supply of the product in

question and shared the market of the product amongst themselves under an agreement.

Accordingly, CCI imposed a penalty of INR 62.543 million against the eleven shoe

companies @ 5 percent on the average of the gross turnover for financial years 2008-09,

2009-10, and 2010-11.-11.

The companies penalized include A R Polymers, Puja Enterprises, M B Rubber, Tirupati

Footwear, H B Rubber, Rajkumar Dyeing and Printing Works, Preet Footwears, S S

Rubbers, R S industries, Shiva Rubber Industries and Derpa Industrial Polymers.

Conclusion

Competition is the thrust on which any economy can survive. The proposed Law provides for a

Competition fund, which shall be utilized for promotion of competition advocacy, prohibiting

abuse of dominance, creating awareness about competition issues and training in accordance

with the rules that may be prescribed.

The MRTP Act 1969, had been in existence for more than three decades. Due to quite a few

inadequacies in the MRTP Act there was a need to change it. With the ever-changing world

dynamics and fierce competition the competition act is just a perfect blend for India. Our aim to

become a superpower by 2020 can be fulfilled with the stringent competition act. Fair and

healthy competition is what we believe in. The new act is definitely a step in right direction by

harmonizing the competition policy with international trade and policy.

Also multilateral cooperation is vital to the protection of competition. While trade liberalization,

privatization, deregulation and the great potential for borderless anti-competitive behavior all

help to remove trade barriers these trends can also enhance opportunities for cross border anti-

competitive behavior

.

The scope of competition policy is broad and essentially includes all government measures that

directly influence the conduct and behavior of enterprises and structure of industry with the

objectives of promoting efficiency and maximizing welfare.

The objective of competition policy is to promote efficiency and maximum welfare. There are

two elements of a competition policy; one is a set of regulatory pieces that enhance competition

in local and national markets, give primary to market forces, allow entry and exit, reduce

administrative control and minimize regulations. The other area of competition policy is a law to

prohibit anti-competitive business as well as practices and regulate merger and acquisitions that

might adversely impact competition.

The message is loud and clear that a well- planned exhaustive competition compliance

program can be of great benefit to all enterprises irrespective of their size, area of operation,

jurisdiction involved, nature of products supplied or services rendered and the same is essential

for companies, its directors and the delegate key corporate executives to avoid insurmountable

hardships of monetary fines, civil imprisonment, beside loss of hard-earned reputation when the

Competition Authorities, the media and others reveal the misdeeds in public.

The provisions of Competition Act could have implications on the way business is carried out.

The provisions relating to anti-competitive agreements and abuse of dominant position are for

protection of consumer interest and enhancing competition in the market place. Similarly, the

provisions relating to Combinations are to ensure that aCombination does not create an

appreciable adverse effect on competition. It would be a necessity to understand applicability

and implications of these provisions to one‟s business as the cost of non-compliance could be

too steep and detrimental.

Open competitive markets are the engine of economic growth. Competition Law is therefore an

important institutional pillar for a thriving market economy as competitive pressures hone

production efficiency and stimulate product and process innovation fundamental to

competitiveness and economic growth.

Source of Information:

http://www.pib.nic.in/newsite/erelease.aspx?relid=96432

Press Information bureau, Govt of India

http://www.cci.gov.in/May2011/OrderOfCommission/612010.pdf

http://www.gibsondunn.com/publications/pages/2013-Mid-Year-Criminal-Antitrust-

Update.aspx

http://cci.gov.in/images/media/ResearchReports/Penalties for infringement of Competition

Laws.pdf

http://www.mca.gov.in/

Amendments to Competition Act 2002

http://cuts-international.org/pdf/discussion-note25feb06.pdf

PwC report on Indian Competition Law- January 2012