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MRTP ACT AND COMPETION ACT: A REVIEW

MRTP Act and Competition Act: A Review

A Research Paper submitted in partial fulfilment for the requirement of the Internship, July, 2011

Submitted toMr. P.K.Singh Competition Commission of India

Submitted byAditya Soni Vth Year, B.A.; L.L.B. (Hons.) Amity Law School, NOIDA Amity University Uttar Pradesh

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MRTP ACT AND COMPETION ACT: A REVIEW

ACKNOWLEDGEMENT

This paper would not have been possible without the support of my guide Mr. P.K. Singh who has given me his precious time, valuable experience and patience, guiding me throughout my research. It has been a wonderful opportunity to work under his guidance. I would also like to thank the Librarians and The I.T. Department, Competition Commission of India for helping me in collecting the relevant material for my project report. And Last but not the least i would like to extend my thanks to all the staff at CCI who has extended their help. I would also like to express my gratitude to my parents who have given me their unconditional love and for making me who I am today.

ADITYA SONI Amity Law School, NOIDA Amity University Uttar Pradesh

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MRTP ACT AND COMPETION ACT: A REVIEW

DISCLAIMER
This project report/dissertation has been prepared by the author as an intern under the Internship Programme of the Competition Commission of India for academic purposes only. The views expressed in the report are personal to the intern and do not necessarily reflect the view of the Commission or any of its staff or personnel and do not bind the Commission in any manner. This report is the intellectual property of the Competition Commission of India and the same or any part thereof may not be used in any manner whatsoever, without express permission of the Competition Commission of India in writing.

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MRTP ACT AND COMPETION ACT: A REVIEW

Contents
ACKNOWLEDGEMENT.........................................................................................................2 DISCLAIMER....................................................................................................................... 3 Contents............................................................................................................................ 4 Chapter 1 Abstract.......................................................................................................... 6 Chapter 2 The MRTP Act, 1969........................................................................................7 RESTRICTIVE TRADE PRACTICE ......................................................................................9 INQUIRY INTO RESTRICTIVE PRACTICES..........................................................................9 RELIEF AVAILABLE.......................................................................................................... 9 WHAT IS UNFAIR TRADE PRACTICE?.............................................................................10 1. FALSE REPRESENTATION.......................................................................................10 2. FALSE OFFER OF BARGAIN PRICE-.........................................................................10 3.FREE GIFTS OFFER AND PRIZE SCHEMES ...............................................................11 4. NON-COMPLIANCE OF PRESCRIBED STANDARDS .................................................11 5. HOARDING, DESTRUCTION, ETC............................................................................11 INQUIRY INTO UNFAIR TRADE PRACTICES.....................................................................11 RELIEF AVAILABLE........................................................................................................ 12 REMEDY: ...................................................................................................................... 12 POWERS OF THE COMMISSION: ...................................................................................12 PRELIMINARY INVESTIGATION.......................................................................................13 REMEDIES UNDER THE ACT .........................................................................................13 Reforms Of 1991 And Metamorphosis..........................................................................14 Experience in the last three decades .....................................................................16 Chapter 3 : MRTP Act - The Last Leap...........................................................................18 Working of the Commission..........................................................................................20 Enquiries Relating to Monopolistic Trade Practices......................................................20 Miscellaneous Complaints/Reports Regarding Trade Practices Received by the Commission.................................................................................................................. 20 TABLE 3.2.................................................................................................................. 21 TABLE 3.3.................................................................................................................. 21 TABLE 3.4.................................................................................................................. 22 TABLE 3.5.................................................................................................................. 22 TABLE 3.6.................................................................................................................. 23 Chapter 4 : Competition Act, 2002..................................................................................24 4| Page ADITYA SONI

MRTP ACT AND COMPETION ACT: A REVIEW These four compartments are described in the narrative that follows:...........................25 Anti Competition Agreements.................................................................................25 Firms enter into agreements, which may have the potential of restricting competition. A scan of the competition laws in the world will show that they make a distinction between horizontal and vertical agreements between firms. 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; prima facie, horizontal agreements are more likely to reduce competition than agreements between firms in a purchaser seller relationship. .................................................25 Horizontal Agreements..............................................................................................25 Per Se Illegality..........................................................................................................26 Vertical Agreements..................................................................................................27 Exceptions.................................................................................................................... 27 Abuse Of Dominance.................................................................................................... 28 Product Market And Geographical Market...................................................................29 Relevant Product Market..............................................................................................29 Relevant Geographic Market........................................................................................29 Predatory Pricing.......................................................................................................... 30 When does abuse of dominance attract the law?.........................................................30 Combinations Regulation............................................................................................32 The Act on Combinations Regulation............................................................................32 Competition Advocacy..................................................................................................35 Competition Commission of India (CCI)........................................................................35 Investigation and Prosecution.......................................................................................36 Adjudication.................................................................................................................. 37 Mergers Bench.............................................................................................................. 37 Competition Commission of India and Selection of Chairperson and Members............37 Status of the Chairperson & Members of CCI............................................................37 Appeal And Review Provisions ..................................................................................38 Extraterritorial Reach................................................................................................ 38 Chapter 5 : The Competion Act, 2002 - Performance Review.......................................39 The Competition Commission of India..........................................................................41 Table 5.1:.................................................................................................................. 41 Table 5.2:.................................................................................................................. 41 5| Page ADITYA SONI

MRTP ACT AND COMPETION ACT: A REVIEW Competition Appellate Tribunal....................................................................................44 Chapter 6 : Case Studies ................................................................................................ 45 Chapter 7 : Conclusion ....................................................................................................47 Bibliography..................................................................................................................... 49

Chapter 1 Abstract

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MRTP ACT AND COMPETION ACT: A REVIEW

The purpose of this report is to analysis the Monopolies and Restrictive Trade Practises Act, 1969 (MRTP Act) and the Competition Act, 2002 to derive a clear sense about their respective aim, object, unique features and Impact. Through the report we shall approach the MRTP Act to see its Unique features, drawbacks and trace it up to its replacement by the Competition Act, 2002. In the end the report shall state some landmark judgement which will make it clear as to how we deal with cases related to the MRTP Act under the present regime of the Competition Act, 2002.

Chapter 2 The MRTP Act, 1969

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MRTP ACT AND COMPETION ACT: A REVIEW

Post independence, when the Constitution of India, that is, the Blanket-cover regulator, was being enacted and adopted, the most important Articles which provided for recognising the effect of the MRTP Act, and preventing and avoiding damage were Article 38 and Article 39 of the Constitution, which was adopted and enacted and came into effect on the 26th day of November, 1949. Article 38 of the Constitution provides for the Directive Principles of State Policy which mandates upon States to secure a social order for the promotion and welfare of the people. This provision recognised the need to eliminate and minimise the inequalities in income, which applied not only to the individuals but also to the groups in different areas. However, the MRTP Act of 1969 owes its existence to the provision provided under Article 39(c) of the Constitution of India which provided that the States shall strive to secure that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment. The preamble to the MRTP Act rests on this very provision of the Constitution of India. In the case of State of Bihar v. Kameshwar Singh 1, the Court was of the opinion, that, a law aimed at doing away with the concentration of big blocks of land in the hands of a few individuals would subserve the directives laid down in sub-clauses (b) and (c) of Article 39 of the Constitution of India. Taking this judgment into perspective, the preamble to the MRTP Act, 1969 gets reinstated where the objective or the intention of the legislature behind enacting such an Act is to avoid damage by concentration of economic power in the hands of only a few and thereby causing damage. However, the MTRP Act was not a result of just the two provision of the Constitution of India. After enacting the aforementioned articles, the Government of India assumed the responsibility of overall development of the country. It was incidentally that the Government appointed the Mahalanobis Committee on the Distribution of Income and Levels of Living in October 1960. The main task at hand for this Committee was identifying the pattern of work of large business houses under the planned economy regime and whether there was any concentration of economic power. It was after this Committee that the Monopolies Inquiry Commission (MIC) was set-up in 1964 which reported that there was high concentration of economic power in over 85% of industries in India at that point in time. This triggered the legislature to enact a legislation to curb such practice and avoid damages which were being posed on such disastrous levels. The Monopolistic and Restrictive Trade Practices Act, 1969, 2was enacted To ensure that the operation of the economic system does not result in the concentration of economic power in hands of few, To provide for the control of monopolies, and To prohibit monopolistic and restrictive trade practices. The MRTP Act extends to the whole of India except Jammu and Kashmir. Unless the Central Government otherwise directs, this act shall not apply to: a. Any undertaking owned or controlled by the Government Company, b. Any undertaking owned or controlled by the Government,

1 2

AIR 1975 SC 1083 www.icrpc.org/icrpc.org.mrtp.htm

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MRTP ACT AND COMPETION ACT: A REVIEW

c. Any undertaking owned or controlled by a corporation (not being a company established by or under any Central, Provincial or State Act, d. Any trade union or other association of workmen or employees formed for their own reasonable protection as such workmen or employees, e. Any undertaking engaged in an industry, the management of which has been taken over by any person or body of persons under powers by the Central Government, f. Any undertaking owned by a co-operative society formed and registered under any Central, Provincial or state Act, g. Any financial institution.

RESTRICTIVE TRADE PRACTICE


A restrictive trade practice is a trade practice, which Prevents, distorts or restricts competition in any manner; or Obstructs the flow of capital or resources into the stream of production; or Which tends to bring about manipulation of prices or conditions of delivery or effected the flow of supplies in the market of any goods or services, imposing on the consumers unjustified cost or restrictions.

INQUIRY INTO RESTRICTIVE PRACTICES


The Commission may inquire into any restrictive trade practice Upon receiving a complaint from any trade association, consumer or a registered consumer association, or Upon a reference made to it by the Central or State Government or Upon its own knowledge or information

RELIEF AVAILABLE
The commission shall if after making an inquiry it is of the opinion that the practice is prejudicial to the public interest, or to the interest of any consumer it may direct that The practice shall be discontinued or shall not be repeated; The agreement relating thereto shall be void in respect of such restrictive trade practice or shall stand modified. The Commission may permit the party to any restrictive trade practice to take steps so that it is no longer prejudicial to the public interest However no order shall be made in respect of a. any agreement between buyers relating to goods which are bought by the buyers for consumption and not for ultimate resale; b. a trade practice which is expressly authorised by any law in force.

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WHAT IS UNFAIR TRADE PRACTICE?3


An unfair trade practice means a trade practice, which, for the purpose of promoting any sale, use or supply of any goods or services, adopts unfair method, or unfair or deceptive practice. Unfair practices may be categorised as under: 1. FALSE REPRESENTATION The practice of making any oral or written statement or representation which: Falsely suggests that the goods are of a particular standard quality, quantity, grade, composition, style or model; Falsely suggests that the services are of a particular standard, quantity or grade; Falsely suggests any re-built, second-hand renovated, reconditioned or old goods as new goods; Represents that the goods or services have sponsorship, approval, performance, characteristics, accessories, uses or benefits which they do not have; Represents that the seller or the supplier has a sponsorship or approval or affiliation which he does not have; Makes a false or misleading representation concerning the need for, or the usefulness of, any goods or services; Gives any warranty or guarantee of the performance, efficacy or length of life of the goods, that is not based on an adequate or proper test; Makes to the public a representation in the form that purports to bea. a warranty or guarantee of the goods or services, b. a promise to replace, maintain or repair the goods until it has achieved a specified result, if such representation is materially misleading or there is no reasonable prospect that such warranty, guarantee or promise will be fulfilled Materially misleads about the prices at which such goods or services are available in the market; or Gives false or misleading facts disparaging the goods, services or trade of another person.

2. FALSE OFFER OF BARGAIN PRICEWhere an advertisement is published in a newspaper or otherwise, whereby goods or services are offered at a bargain price when in fact there is no intention that the same may be offered at that price, for a reasonable period or reasonable quantity, it shall amount to an unfair trade practice. The bargain price, for this purpose meansa. the price stated in the advertisement in such manner as suggests that it is lesser than the ordinary price, or b. the price which any person coming across the advertisement would believe to be better than the price at which such goods are ordinarily sold.
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www.businessgyan.com/node/139

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3.FREE GIFTS OFFER AND PRIZE SCHEMES The unfair trade practices under this category are: Offering any gifts, prizes or other items along with the goods when the real intention is different, or Creating impression that something is being offered free alongwith the goods, when in fact the price is wholly or partly covered by the price of the article sold, or Offering some prizes to the buyers by the conduct of any contest, lottery or game of chance or skill, with real intention to promote sales or business.

4. NON-COMPLIANCE OF PRESCRIBED STANDARDS Any sale or supply of goods, for use by consumers, knowing or having reason to believe that the goods do not comply with the standards prescribed by some competent authority, in relation to their performance, composition, contents, design, construction, finishing or packing, as are necessary to prevent or reduce the risk of injury to the person using such goods, shall amount to an unfair trade practice.

5. HOARDING, DESTRUCTION, ETC. Any practice that permits the hoarding or destruction of goods, or refusal to sell the goods or provide any services, with an intention to raise the cost of those or other similar goods or services, shall be an unfair trade practice.

INQUIRY INTO UNFAIR TRADE PRACTICES


The Commission may inquire into Any unfair trade practice Upon receiving a complaint from any trade association, consumer or a registered consumer association, or Upon reference made to it by the Central Government or State Government Upon an application to it by the Director General or Upon its own knowledge or information.

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RELIEF AVAILABLE
After making an inquiry into the unfair trade practice if the Commission is of the opinion that the practice is prejudicial to the public interest, or to the interest of any consumer it may direct that The practice shall be discontinued or shall not be repeated; The agreement relating thereto shall be void in respect of such unfair trade practice or shall stand modified. Any information, statement or advertisement relating to such unfair trade practice shall be disclosed, issued or published as may be specified The Commission may permit the party to carry on any trade practice to take steps to ensure that it is no longer prejudicial to the public interest or to the interest of the consumer. However no order shall be made in respect a trade practice which is expressly authorised by any law in force. The Commission is empowered to direct publication of corrective advertisement and disclosure of additional information while passing orders relating to unfair trade practices. UNFAIR: An Unfair Method or an unfair deceptive practice adopted for the purpose of promoting the sale, use or supply of any goods or for the provision of any services, is an unfair trade practice under the Monopolies and Restrictive Trade Practices Act, 1969. Unfair Trade Practices under the Act include, practices such as making false statements in relation to the quality, quantity (the statement could either be oral or in writing or even by visible representation), sponsorship, uses or benefits of goods, passing off old goods as new, or giving of warranty/guarantee which is not based on proper test, making public representation that purports to be a guarantee or warranty or a promise to replace or replace articles if there is no reasonable guarantee that the warranty/repair or replacement will not be carried out. Further practices such as misleading the public concerning the prices at which certain goods are to be sold or giving misleading facts or disparaging the goods or services of the other person, advertising the sale or services at a bargain price which is not intended to be sold at such bargain price, offering gifts or prices that are fully or partly covered by the amount charged, sale or supply of goods knowing fully well that they do not comply with the standards prescribed, hoarding or destruction of goods, etc. are also included in the definition of unfair trade practices.

REMEDY:
Any trade association, consumer or registered consumers' association aggrieved by such of the practices mentioned above can seek relief by filing a complaint before the Monopolies and Restrictive Trade Practices Commission, which on such complaint has powers to conduct an inquiry into such practices. Any consumer can approach the Commission irrespective of whether such consumer is a member of the consumers' association or not. The Commission can also conduct inquiry on the reference of the Central/State Government, on an application by the Director General or on its own knowledge or information.

POWERS OF THE COMMISSION:


The Commission may, on satisfaction that the practice is an unfair trade practice, direct that such practice shall be discontinued, and in cases in which agreements in relation to such practices are made, the Commission may also direct that such agreement shall be void or specify the manner in
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which it shall be modified. Further the Commission also has the power to direct that any information relating to such unfair trade practices shall be disclosed, issued or published. Where such party takes such steps to ensure that the trade practice is no longer prejudicial to public interest, or the interest of any consumer or consumers generally, the Commission may permit such party to carry on such trade.

The MRTP Commission has the following powers: 1. Power of Civil Court under the Code of Civil Procedure, with respect to: a. Summoning and enforcing the attendance of any witness and examining him on oath; b. Discovery and production of any document or other material object producible as evidence; c. Reception of evidence on affidavits; d. Requisition of any public record from any court or office. e. Issuing any commission for examination of witness; and f. Appearance of parties and consequence of non-appearance. 2. Proceedings before the commission are deemed as judicial proceedings with in the meaning of sections 193 and 228 of the Indian Penal Code. 3. To require any person to produce before it and to examine and keep any books of accounts or other documents relating to the trade practice, in its custody. 4. To require any person to furnish such information as respects the trade practice as may be required or such other information as may be in his possession in relation to the trade carried on by any other person. 5. To authorise any of its officers to enter and search any undertaking or seize any books or papers, relating to an undertaking, in relation to which the inquiry is being made, if the commission suspects tat such books or papers are being or may be destroyed, mutilated, altered, falsified or secreted.

PRELIMINARY INVESTIGATION
Before making an inquiry, the Commission may order the Director General to make a preliminary investigation into the complaint, so as to satisfy itself that the complaint is genuine and deserves to be inquired into.

REMEDIES UNDER THE ACT


The remedies available under this act are TEMPORARY INJUNCTION Where, during any inquiry, the commission is satisfied that any undertaking or any person is carrying on, or is about to carry on, any monopolistic, restrictive or unfair trade practice, which is a pre-judicial to the public interest or the interest of any trader or class of traders generally, or of any consumer or class of consumers, or consumers generally, the commission may grant a temporary injunction restraining such undertaking or person form carrying on such practice until the conclusion of inquiry or until further orders.
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COMPENSATION Where any monopolistic, restrictive or unfair trade practice has caused damage to any Government, or trader or consumer, an application may be made to the Commission asking for compensation, and the Commission may award appropriate compensation. Where any such loss or damage is caused to a number of persons having the same interest, compensation can be claimed with the permission of the commission, by any of them on behalf of all of them

REFORMS OF 1991 AND METAMORPHOSIS4


In this new millennium born about three years ago, the present decade bids fair to be one of significant changes. The changes are nothing but a continuum from the last decade or two, when changes in the political and economic fields had taken place on a tempestuous note. Political metamorphoses, unthinkable till a few years ago, have taken place alongside economic reforms at a breath-taking pace. For nearly half a century till the early 1990s, there was a political and economic divide in the world into two powerful blocks. Over the last ten years after the early 1990s, the world is turning somewhat unipolar, with central planning yielding to transition to market economy. All over the world, one of the dominant economic themes in the last decade and a half has been the process of globalisation and a progressive international economic integration of the world economy. The movement is towards the widening of international flows of trade, finance and information in a single integrated global market. Globalisation has the fundamental attributes of relying significantly on market forces, ensuring competition and keeping market functioning efficiently. Measures adopted by many countries are essentially designed to open competition in strategic sectors such as telecommunications, air lines, electricity generation and distribution etc. Such measures are a part of a tripod architecture with the three vertices, one may christen as Liberalisation, Privatisation, and Globalisation (LPG). A veneer running common to the LPG measures is the element of competition. The LPG syndrome seeks to make competition a driving force in the economic and commercial activities of the world. As observed by Professor Wolfgang Kartte, the Chairman of the German Federal Cartel Office, Competition is the engine of market economy (quoted in Brusick, 1992). The thinking of policy makers in many countries, particularly the developing ones and the hitherto centrally planned economies, is towards factoring competition into the economic and market policies. Some of the countries have embarked on structural adjustment programmes involving competition driven reforms and competition oriented policies. India is undergoing the process of transition into a market economy through measures set by the broad frame work of LPG. While planned economic development had been the strategy adopted by India, since 1950s, it is in the last more than a decade since 1991, that the strategy has undergone significant metamorphoses. The economic reforms since 1991 and the evolution of the new strategy

A Functional Competition Policy For India by Pradeep S. Mehta

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have been well documented (Bhagwati and Desai, 1970, Bhagwati and Srinivasan, 1975 and Ahluwalia, 1991). In the pre-1991 reforms period, Indias planned strategy and economic development stressed the broad policy objectives of (i) the development of an industrial base with a view to achieving selfreliance and (ii) the promotion of social justice. The specific policy measures towards these objectives were across-the-board substitution of Indian goods and services for imports, controlling the pattern of investment and controlling the utilisation of foreign exchange. The thrust of the policy instruments were the industrial licensing that affected the private sector and creating of a large public sector. The entire exercise was, as described earlier, the Command-and-Control economy.

The Command-and-Control triggered policies meant that Government intervention pervaded almost all areas of economic activity in the country. For instance, there was no contestable market. This meant that there was neither an easy entry nor an easy exit for enterprises. Government determined the plant sizes, location of the plants, prices in a number of important sectors, and allocation of scarce financial resources. Their further interventions were characterised by high tariff walls, restrictions on foreign investments and quantitative restrictions. It may thus be seen that free competition in the market was under severe fetters, mainly because of Governmental policies and strategies, specifically, (1) industrial policy, (2) trade and commercial policy, (3) foreign investment policy, and (4) financial sector policy. In this paper, the reforms since 1991 are not listed for want of space and as they may not be directly relevant to the title of this paper. Suffice it to say that the industrial policy, trade and commercial policy, foreign and investment policy and financial sector policy were all de regulated and liberalised to embrace the LPG process. For instance, licensing has been abolished in all but six industries. Major industries including iron and steel, heavy electrical equipment, aircraft, air transport, shipbuilding, telecommunication equipment and electric power are now open for private sector investments. The monopoly of the public sector industries was abolished in 1991 except for those, where security and strategic concerns still dominated. The system of price preference for public sector has been discontinued. Reservation of certain goods for production in the small scale sector is gradually being phased out. Tariffs are being reduced in a phased manner. As a result of liberalisation of regulatory controls, rationalisation and mergers, there is more effective competition in the banking sector. The MRTP Act conceived and legislated more than 30 years ago, was a consequence of Commandand-Control policy approach of the Government. The so call MRTP firms with assets more than Rs. 100 crores (about US $ 22 million) were prohibited from entering and expanding in any sector except those listed in Appendix I of the Industrial (Development and Regulation) Act, 1951. Even, in respect of such listed sectors, the MRTP firms were required to obtain MRTP clearances in addition to the usual industrial licenses. In other words, the MRTP firms, generally considered big in size, were allowed to grow only under Government supervision. Size, therefore, was a pejorative factor in the thinking of the Government, the premise being big becoming bigger is ugly.

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It is after 1991 reforms that the said premise big becoming bigger is ugly yielded to a metamorphosed approach, namely, big becoming bigger may not be handsome but certainly is not ugly. In other words, size is not a pejorative factor.

EXPERIENCE

IN THE LAST THREE DECADES

During the administration of the MRTP Act over three decades since its inception in 1969, many difficulties were encountered, particularly in regard to interpretations of expressions and provisions therein. There has been a large number of binding rulings of the Supreme Court of India and also Bench decisions of the MRTP Commission. These decisions have interpreted the various provisions of the MRTP Act from time to time and have constituted precedents for the future. Thus, where the wording of the existing law has been considered inadequate by judicial pronouncements, it became necessary to redraft the law to inhere the spirit of the law and the intention of the lawmakers. A perusal of the MRTP Act will show that there is neither definition nor even a mention of certain offending trade practices which are restrictive in character. Some illustrations of these are: Abuse of Dominance Cartels, Collusion and Price Fixing Bid Rigging Boycotts and Refusal to Deal Predatory pricing

Often an argument has been advanced that one particular general provision [Section 2(o)] of the MRTP Act may cover all anti-competition practices, as it defines an RTP as a trade practice which prevents, distorts or restricts competition and that therefore there is no need for a new law. While complaints relating to anti-competition practices could be tried under the generic definition of restrictive trade practice (which prevents, distorts or restricts competition), the absence of specification of identifiable anti-competition practices gave room to different interpretations by different Courts of Law, with the result that the spirit of the law often escaped being captured and enforced. While a generic definition might be necessary and might form the substantive foundation of the law, it was considered necessary to identify specific anti-competition practices and define them so that the scope for a valve or opening on technical grounds for the offending parties to escape indictment would not obtain. Hence, the need for a new and better law was recognised, which gave birth to the Competition Act, 2002. Furthermore, some of the anti-competition practices like cartels, predatory pricing, bid rigging etc. are not specifically mentioned in the MRTP Act but the MRTP Commission, over the years, had attempted to fit such offences under one or more of its sections by way of interpretation of the language used therein.
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Another dimension that marked the thinking of the Government particularly after the 1991 economic reforms was the dynamic context of International trade and market as well as the domestic trade and market. When the MRTP Act was drafted in 1969, the economic and trade milieu prevalent at that time constituted the premise for its various provisions. There has been subsequently a sea change in the milieu with considerable movement towards liberalisation, privatisation and globalisation. The law needed to yield to the changed and changing scenario on the economic and trade front. This was one important reason why a new competition law had to be framed. Many countries like the U.K., Canada, Australia and the European Community have, in line with this thinking, enacted new competition laws and repealed their earlier laws governing fair-trading, etc. The experience in administering the MRTP Act, for about three decades since 1969, the deficiencies noted in the said Act, the difficulties that arose out of different interpretations and judgments of the MRTP Commission and the superior Courts of Law and the new and changing economic milieu spurred by the LPG paradigm and the economic reforms of 1991 (and thereafter) impelled the need for a new competition law. The need for a new law has its origin in Finance Ministers budget speech in February, 1999: The MRTP Act has become obsolete in certain areas in the light of international economic developments relating to competition laws. We need to shift our focus from curbing monopolies to promoting competition. The Government has decided to appoint a committee to examine this range of issues and propose a modern competition law suitable for our conditions.

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CHAPTER 3 : MRTP ACT - THE LAST LEAP


(Based on Ministry of Corporate Affairs, Government of India Annual Report 2009-2010)5 The provisions of the Monopolies and Restrictive Trade Practices Act (hereafter referred to as Act) are designed to ensure that the working of the economic system does not result in the concentration of economic power to the detriment of people, to facilitate economic growth with justice, and to check monopolistic, restrictive and unfair trade practices in the economy. The Act applies to the whole of India, except the State of Jammu & Kashmir and Sikkim. Although the nomenclature of the MRTP Act does not contain any reference to the consumer or their welfare, yet it is primarily oriented to achieve that objective by way of monitoring and curbing monopolistic, restrictive and unfair trade practices which have a significant bearing on consumer welfare and their satisfaction. It seeks to create an environment which is conducive to the healthy growth of industry, fair trade and business and above all fair competition. The statute endeavors to ensure that the suppliers of goods and those engaged in rendering services of different types do not indulge in unfair or objectionable trade practices. It thereby encourages fair competition, fair play and competitive efficiency in business and strengthens the position of the consumers in their dealings with producers and suppliers of goods and services. The restrictive trade practice are defined in Section 2(o) of the MRTP Act. This Section visualizes the following three situations detrimental to public interest:i) the trade practice which has the effect of preventing, distorting or restricting competition; ii) the trade practices which tend to obstruct the flow of capital or resources into the stream of production; and iii) manipulation of prices, or conditions of delivery or to affect the flow of supplies in such manner as to impose on the consumers unjustified costs or restrictions. Apart from the above definition of restrictive trade practices, the trade practices mentioned in sub-section (1) of Section 33 of the Act are deemed to be restrictive trade practices under the Act. Unfair Trade Practices are defined in Section 36-A of the MRTP Act. The definition is very wide and covers various types of false or misleading representations. It is an inclusive definition. The aim of the legal provisions is to protect the consumers against unfair or deceptive practices and also false and misleading representations in the media and otherwise. According to the Act, the MRTP Commission can be approached by any of the stated means:(i) a) a complaint by an individual; or b) a complaint by a registered association of consumers; or c) a complaint by a trade association; or ii) a reference by the State or Central Government; or
5

http://www.mca.gov.in/Ministry/annual_reports/annualreport2009/Eng/MCA_AR0910_English.pdf

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iii) an application by the Director General (I&R); Besides above, the Commission can take cognizance of restrictive, unfair or monopolistic Trade Practices upon its own knowledge or information received from any source and initiate appropriate action. There can be cases in which a restrictive or unfair trade practice is adopted against an individual consumer unintentionally or due to ignorance of the provisions of the MRTP Act. In such cases and also in some other cases, complaints of consumers or other aggrieved persons are placed before appropriate Bench of the Commission for judicial orders. It has been noticed that in a large number of cases, the complainee satisfies the consumers on the intervention of the Commission and since the complainant gets the needed relief, no further action is taken. In that way, relief has been received by innumerable number of consumers/ customers by approaching the Commission. Such cases pertain to refund in respect of booking amount of scooters, cars, repair or replacement of refrigerators, television sets, repair of cars during the warranty period and other items of common use and consumer durables. Similarly, there have been cases of successful intervention related to booking of flats, plots and other disputes relating to property etc. The Director General (I&R) is also empowered to receive complaints or take up matters for investigation suo-moto and to file applications before the Commission for the purpose of curbing monopolistic, restrictive or unfair trade practices. The Director General can also file an application for injunction under Section 12-A of the Act. Apart from the Director General, investigation can also be conducted by any Officer of the Commission not below the rank of Assistant Director. In case of violation of the orders of the Commission passed under section 36-D and section 37 of the Act, prosecution proceedings can be initiated in a Court of Sessions under Section 48-C and Section 50 of the Act respectively. In respect of violations related to injunctions, the guilty can be punished by the Commission under Order 39 Rule-2A of the Civil Procedure Code, 1908 read with Section 13-B of the Act to punish for contempt of itself and for this purpose provisions of Contempt of Courts Act, 1971, apply subject to certain modifications. As on 14-10-2009, 26 cases of contempt were pending. On 27th September, 1991 the Government issued a notification under Section 3 of the Act to the effect that the Act shall apply to all Public Sector Undertakings, Co-operatives and Financial Institutions. However, the trade unions or other associations of workmen or employees formed for their own reasonable protection have been kept outside the purview of the Act. Similarly, undertakings engaged in the production of arms and ammunition and allied items of defence equipment, defence aircraft and warships, atomic energy and minerals specified in the schedule to the Atomic Energy (Control of Production and Use) Order, 1953 and Industrial Units under the Currency and Coinage Division, Ministry of Finance, Department of Economic Affairs, have been kept out of the purview of the Act. The MRTP Act was set to be repealed by the passing of the Competition Act, 2002. Certain amendments were made to the Competition Act, 2002 in the year 2007. As per these amendments MRTP Commission established under MRTP Act, 1969 was to continue to function for two years after repeal of MRTP Act, 1969, to dispose the pending cases before the MRTP Commission. Further, certain changes were made to the Competition Act, 2002 by way of an ordinance, the Competition (Amendment) Ordinance, 2009. As per this ordinance the MRTP Act was repealed with
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effect from 1st September, 2009 and the MRTP Commission stands dissolved with effect from 14th October, 2009.

Working of the Commission


Pursuant to the Monopolies and Restrictive Trade Practices (Amendment) Act, 1991 the requirement of pre-entry clearance for expansion, establishment of new undertakings, amalgamation, merger and take over under the MRTP Act was removed. This resulted in deletion of Sections 20 to 26 (Part A of Chapter-III of the Act). Sections 27, 27-A and 27-B in Chapter-III, however, have been retained subject to certain amendments. These Sections deal with a possible enquiry by the Commission and subsequent action 50 by the Government under certain circumstances to direct severance of interconnection between undertakings. Enquiries Relating to Monopolistic Trade Practices As on 1st April, 2009, 5 enquiries under subsection (b) of Section 10 were pending. No enquiry was instituted during the year. One enquiry was disposed and as such 4 enquires were pending at the end of the year. The Commission did not receive any reference from the Central/State Government under Section 31(1) of the MRTP Act. Thus at the end of the year 4 MTP enquiries were pending. Miscellaneous Complaints/Reports Regarding Trade Practices Received by the Commission. Restrictive/Unfair Trade Practices (Combined Information): As on 31-03-2009, 1056 complaints were pending and 106 new complaints were received by the Commission up to 14.10.2009, making a total of 1162 complaints to be dealt with during the year. Out of these, 1032 complaints were disposed of and the proceedings in respect of them were closed. At the end of 14.10.2009, 130 complaints were pending for disposal. The position of the investigation cases referred to the Director General (I&R) (DG) and Director (Research) during the year under review is presented in the Table 3.1 .
TABLE 3.1
No. of cases pending as on 01-04-2009 No. of new cases referred during the year (01.04.09 to 14.10.09) (3) 02 No. of cases in which investigation Reports were received No. of cases pending with DG as on 14-10-2009 (5) 11

Sl. No.

(1) RTP Investigations UTP Investigations

(2) 12

(4) 03

59

52

31

80

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Public Sector Undertakings, co-operative societies, financial institutions etc. have also become subject to the provisions of MRTP Act, 1969 w.e.f. 27-09-1991. Hitherto anomaly which used to exist between the private sector and public sector has since been removed. The data relating to complaints/ applications/ reports etc. given in the report is inclusive of cases relating to public sector and cooperative societies. Positions of enquiries relating to Restrictive Trade Practices is presented in table 3.2 TABLE 3.2 Sl.No. Section of the Act No. of Enquiries Enquiries pending as on instituted 31.03.2009 during the Period 01.04.09 to 14.10.09 (3) (4) 211 1 47 32 291 15 0 3 1 19 Enquiries disposed of during period 01.04.09 to 14.10.09 (5) 25 0 3 8 36 No. of enquiries pending as on 14.10.09 (6) 201 1 47 25 274

(1) 1. 2. 3. 4.

(2) 10(a)(i ) 10(a)( ii) 10(a)(iii) 10(a)(iv) Total

Position of enquiries relating to Unfair Trade Practices is presented in Table 3.3

TABLE 3.3 Sl.No. Section of the Act No. of Enquiries Enquiries pending as on instituted 31.03.2009 during the Period 01.04.09 to 14.10.09 (3) (4) 435 0 19 292 746 38 0 16 50 104 Enquiries disposed of during the period 01.04.09 to 14.10.09 (5) 18 0 0 22 40 No. of enquiries pending as on 14.10.09 (6) 455 0 35 320 810

(1) 1. 2. 3. 4.

(2) 36-B(a ) 36-B(b) 36-B(c) 36-B(d ) Total

Temporary Injunction :
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Section 12-A of the MRTP Act empowers the Commission to grant temporary injunctions. Where during an enquiry before the Commission, it is proved that any undertaking or any person is carrying on, or is about to carry on any monopolistic or restrictive or unfair trade practice and such practice is likely to affect prejudicially the public interest or interest of any trader, class of traders or traders generally or any consumer or consumers generally, the Commission may, for the purpose of staying or preventing the undertaking or, as the case may be, such person from causing such prejudicial effect, by order, grant temporary injunction restraining such undertaking or person from carrying on any monopolistic, restrictive or unfair trade practice until the conclusion of such enquiry or until further orders. During the year under review, the Commission dealt with the applications seeking injunction under Section 12-A as shown in the Table 3.4 TABLE 3.4 Applications pending as on 01.04.2009 (1) 37 Applications received during the period from 01.04.2009 to 14.10.2009 (2) 37 Applications disposed of during the period from 01.04.2009 to 14.10.2009 (3) 44 Applications pending as on 14.10. 2009 (4) 30

Powers of the Commission to Award Compensation:


Where as a result of the monopolistic, restrictive or unfair trade practice, carried on by any undertaking or any person, any loss or damage is caused to the Central Government or any State Government or any trader or class of traders or any consumer, such Government or, as the case may be, trader or class of traders or consumers may, make an application to the Commission for an order for the recovery from the undertaking or owner thereof or, as the case may be, from such person, of such amount as the Commission may determine, as compensation for the loss or damage so caused. The provisions of Section 12-B of the MRTP Act apply to compensation cases. During the year under review, the Commission handled compensation applications as shown in the Table 3.5 TABLE 3.5

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Applications pending as on 01.04.2009

Applications received during the period 1.4.2009 to 14.10.2009 (2) 67

Applications disposed of during the period 1.4. 2009 to 14.10.2009 (3) 41

Applications pending as on 14.10.2009

(1) 1155

(4) 1181

As stated earlier in the report, the Commission is empowered to initiate Contempt of Court proceedings for which powers under the Contempt of Court Act, 1971 are conferred as per Section 13B of the Act. During the period under review the Commission dealt with contempt applications as shown in the Table 3.6. TABLE 3.6 Applications pending as on 01.04.2009 (1) 27 Applications received during the period 1.4.2009 to 14.10.2009 (2) 4 Applications disposed of during the period 1.4. 2009 to 14.10.2009 (3) 5 Applications pending as on 14.10.2009 (4) 26

The MRPT Act 1969 has been repealed w.e.f. 01.09.2009 after the notification of Section 66; competition Act 2002. The MRTPC stands fully dissolved w.e.f. 14.10.2009 under the competition (Amendment) Act, 2009.

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Chapter 4 : Competition Act, 2002


In October, 1999, the Government of India appointed a High Level Committee on Competition Policy and Competition Law6 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 Government in May 2000 [the report will be referred to hereinafter as High Level Committee (2000)]. The draft competition law was drafted and presented to the Government in November 2000. After some refinements, following extensive consultations and discussions with all interested parties, the Parliament passed in December 2002 the new law, namely, the Competition Act, 2002.

RUBRIC OF THE

NEW LAW,

COMPETITION ACT, 2002 (ACT)7

There are three areas of enforcement that provide the focus for most competition laws in the world today. 8 Agreements among enterprises Abuse of dominance Mergers or, more generally, combinations among enterprises

There are, however, differences in emphasis and interpretations across countries and over time within countries. The above mentioned three areas are not mutually exclusive and there is considerable overlap between them. A number of actions that constitute abuse of dominance could infringe the law regarding agreements among enterprises. The actions are similar though the causes might be different.
The author was a Member of the Committee. Competition Act, 2002 : The Approach By S. Chakravarthy, a segment in part I of A Functional Competition Policy of India 8 Although it does not directly form a part of competition law, legislation regarding various Regulatory Authorities falls under the larger ambit of competition policy.
6 7

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In one case, it may be the joint action of one or more undertakings that is in question, whereas in another, it may be the action of one dominant undertaking that is the driving force. The concern with mergers is ultimately a concern with market power and the possible abuse of that market power by the merged entity. In spite of this, most laws deal with this separately. One reason for this is that it might be difficult to deal with the situation after the fact. In spite of the inevitable duplication that follows from this classification, it provides a useful taxonomy for organising the thinking about competition law.

The rubric of the new law, Competition Act, 2002 (Act, for brief) has essentially four compartments: Anti - Competition Agreements Abuse of Dominance Combinations Regulation Competition Advocacy These four compartments are described in the narrative that follows:

ANTI COMPETITION AGREEMENTS Firms enter into agreements, which may have the potential of restricting competition. A scan of the competition laws in the world will show that they make a distinction between horizontal and vertical agreements between firms. 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; prima facie, horizontal agreements are more likely to reduce competition than agreements between firms in a purchaser seller relationship.

HORIZONTAL AGREEMENTS Agreements between two or more enterprises that are at the same stage of the production chain and in the same market constitute the horizontal variety. An obvious example that comes to mind is an agreement between enterprises dealing in the same product or products. But the market for the product(s) is critical to the question, if the agreement trenches the law. The Act has taken care to define the relevant market.9 To attract the provision of law, the products must be substitutes. If parties to the agreement are both producers or retailers (or wholesalers), they will be deemed to be at the same stage of the production chain.

Relevant market is discussed in the section on abuse of dominance under the heading Product Market and Geographical Market, infra.
9

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A specific goal of competition policy/law is and needs to be the prevention of economic agents from distorting the competitive process either through agreements with other companies or through unilateral actions designed to exclude actual or potential competitors. It needs to control agreements among competing enterprises (horizontal agreements) on prices or other important aspects of their competitive interaction. Likewise, agreements between firms at different levels of the manufacturing or distribution processes (vertical agreements, for example between a manufacturer and wholesaler) which are likely to harm competition (albeit less harmful than horizontal agreements) need to be addressed in the competition policy/law. The foremost constituent of any competition policy/law is obviously the objective to foster competition and its obverse is the need to deal effectively against practices and conduct that subvert competition. The Act reckons these propositions.

In general the rule of reason test is required for establishing that an agreement is illegal. However, for certain kinds of agreements, the presumption is generally that they cannot serve any useful or pro competitive purpose. Because of this presumption, the law makers do not subject such agreements to the rule of reason test. They place such agreements in the per se illegal category (please see next section). The Act presumes that the following four types of agreements between enterprises, involved in the same or similar manufacturing or trading of goods or provision of services have an appreciable adverse effect on competition :

Agreements regarding prices. These include all agreements that directly or indirectly fix the purchase or sale price. Agreements regarding quantities. These include agreements aimed at limiting or controlling production, supply, markets, technical development, investment or provision of services. Agreements regarding bids (collusive bidding or bid rigging). These include tenders submitted as a result of any joint activity or agreement. Agreements regarding market sharing. These include agreements for sharing of markets or sources 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.

PER SE ILLEGALITY Such horizontal agreements, which include membership of cartels, are presumed to lead to unreasonable restrictions of competition and are therefore presumed to have an appreciable adverse effect on competition. In other words, they are per se illegal. This provision of per se illegality is rooted in the provisions of the US law and has a parallel in most legislations on the subject. The Australian law prohibits price fixing arrangements, boycotts and some forms of exclusive dealing. The new UK competition law, namely, Competition Act, 2000, endorses certain agreements to have an appreciable effect on competition (presumption is however rebuttable). A per se illegality would mean that there would be very limited scope for discretion and interpretation on the part of the prosecuting and adjudicating authorities. The underlying principle in such presumption of illegality is that the agreements in question have an appreciable anti-competitive effect. Barring the aforesaid four types of agreements, all the others will be subject to the rule of reason" test in the Act.
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VERTICAL AGREEMENTS By and large, as noted earlier, vertical agreements will not be subjected to the rigours of competition law. However, where a vertical agreement has the character of distorting or preventing competition, it will be placed under the surveillance of the law. For instance, the following types of agreements, inter alia, will be subjected to the rule of reason test. Tie in arrangement; Exclusive supply agreement Exclusive distribution agreement; Refusal to deal; Resale price maintenance.

The Act lists the following factors to be taken into account for adjudicatory purposes to determine whether an agreement or a practice has an appreciable adverse effect on competition, namely, a) b) c) d) e) f) creation of barriers to new entrants in the market, driving existing competitors out of the market, foreclosure of competition by hindering entry into the market, accrual of benefits to consumers, improvements in production or distribution of goods or provision of services, and promotion of technical, scientific and economic development by means of production or distribution of goods or provision of services.

EXCEPTIONS
The provisions relating to anti-competition agreements will not restrict the right of any person to restrain any infringement of intellectual property rights or to impose such reasonable conditions as may be necessary for the purposes of protecting any of his rights which have been or may be conferred upon him under the following intellectual property right statutes;
the Copyright Act, 1957; the Patents Act, 1970;

the Trade and Merchandise Marks Act, 1958 or the Trade Marks Act, 1999; the Geographical Indications of Goods (Registration and Protection) Act, 1999; the Designs Act, 2000; the Semi-conductor Integrated Circuits Layout-Design Act, 2000. The rationale for this exception is that the bundle of rights that are subsumed in intellectual property rights should not be disturbed in the interests of creativity and intellectual/innovative power of the human mind. No doubt, this bundle of rights essays an anti-competition character, even bordering on monopoly power. But without protecting such rights, there will be no incentive for innovation, new technology and enhancement in the quality of products and services. However, it may be noted, that the Act does not permit any unreasonable condition forming a part of protection or exploitation of
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intellectual property rights. In other words, licensing arrangements likely to affect adversely the prices, quantities, quality or varieties of goods and services will fall within the contours of competition law as long as they are not in reasonable juxtaposition with the bundle of rights that go with intellectual property rights. Yet another exception to the applicability of the provisions relating to anti-competition agreements is the right of any person to export goods from India, to the extent to which, an agreement relates exclusively to the production, supply, distribution or control of goods or provision of services for such export. In a manner of speaking, export cartels are outside the purview of competition law. In most jurisdictions, export cartels are exempted from the application of competition law. A justification for this exemption is that most countries do not desire any shackles on their export effort in the interest of balance of trade and/or balance of payments. Holistically, however, exemption of export cartels is against the concept of free competition. The Central Government has power under the Act to exempt from the application of the Act, or any provision thereof, a class of enterprises, a practice, an agreement etc. This has been given a treatment later in this paper (see section titled Exemptions).

ABUSE OF DOMINANCE
"Dominant Position has been appropriately defined in the Act in terms of the position of strength, enjoyed by an enterprise, in the relevant market, in India, which enables it to (i) operate independently of competitive forces prevailing in the relevant market; or (ii) affect its competitors or consumers or the relevant market, in its favour. This definition may perhaps appear to be somewhat ambiguous and to be capable of different interpretations by different judicial authorities. But then, this ambiguity has a justification having regard to the fact that even a firm with a low market share of just 20% with the remaining 80% diffusedly held by a large number of competitors may be in a position to abuse its dominance, while a firm with say 60% market share with the remaining 40% held by a competitor may not be in a position to abuse its dominance because of the key rivalry in the market. Specifying a threshold or an arithmetical figure for defining dominance may either allow real offenders to escape (like in the first example above) or result in unnecessary litigation (like in the second example above). Hence, in a dynamic changing economic environment, a static arithmetical figure to define dominance may, perhaps, be an aberration. With this suggested broad definition, the Regulatory Authority will have the freedom to fix errant undertakings and encourage competitive market practices, even if there is a large player around. Abuse of dominance is key for the Act, in so far as dominant enterprises are concerned. It is important to note that the Act has been designed in such a way that its provisions on this count only take effect, if dominance is clearly established. As already stated, there is no single objective market share criterion that can be blindly used as a test of dominance. The Act seeks to ensure that only when dominance is clearly established, can abuse of dominance be alleged. Any ambiguity on this count could endanger large efficient firms.

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PRODUCT MARKET AND GEOGRAPHICAL MARKET


Before assessing whether an undertaking is dominant, it is important, as in the case of horizontal agreements, to determine what the relevant market is. There are two dimensions to this the product market and the geographical market. On the demand side, the relevant product market includes all such substitutes that the consumer would switch to, if the price of the product relevant to the investigation were to increase. From the supply side, this would include all producers who could, with their existing facilities, switch to the production of such substitute goods. The geographical boundaries of the relevant market can be similarly defined. Geographic dimension involves identification of the geographical area within which competition takes place. Relevant geographic markets could be local, national, international or occasionally even global, depending upon the facts in each case. Some factors relevant to geographic dimension are consumption and shipment patterns, transportation costs, perishability and existence of barriers to the shipment of products between adjoining geographic areas. For example, in view of the high transportation costs in cement, the relevant geographical market may be the region close to the manufacturing facility. The Act posits the factors that would have to be considered by the adjudicating Authority in determining the Relevant Product Market and the Relevant Geographic Market, reproduced herein below:

RELEVANT PRODUCT MARKET


physical characteristics or end-use of goods; price of goods or service; consumer preferences; exclusion of in-house production; existence of specialised producers; classification of industrial products.

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.

The determination of relevant market by the adjudicating Authority has to be done, having due regard to the relevant product market and the relevant geographic market.

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PREDATORY PRICING
One of the most pernicious forms of abuse of dominance is the practice of predatory pricing. Predatory pricing occurs, where a dominant enterprise charges low prices over a long enough period of time so as to drive a competitor from the market or deter others from entering the market and then raises prices to recoup its losses. The greater the diversification of the activities of the enterprise in terms of products and markets and the greater its financial resources, the greater is its ability to engage in predatory behavior. Predatory price is defined in the Act to mean 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 (the expression regulations means the regulations made by the Commission under the Act). Predatory pricing, therefore is a situation where a firm with market power prices below cost so as to drive competitors out of the market and, in this way, acquire or maintain a position of dominance. But there is a danger of confusing pro-competitive pricing with predatory behaviour. In reality, predation is only established after the fact i.e. once the rival has left the market and the predator has acquired a monopoly position in the market. However, any law to prevent is meaningful, only if it takes effect before the fact i.e. before the competitor has left the market. Predatory pricing is a kind of Antitrust violation. The Monopolies and Restrictive Trade Practices Commission in India in the Modern Food Industries Ltd. (MRTP Commission, 1996) case observed that the essence of predatory pricing is pricing below cost with a view to eliminating a rival. Further, the Commission made it clear that the mere offer of a price lower than the cost of production cannot automatically lead to an indictment of predatory pricing and that evidence of malafide intent to drive competitors out of business or to eliminate competition is required. The logic underlying the caution of the Commission is that price-cutting may be for genuine reasons, for example in the case of inventory surplus. Price-cutting has therefore to be coupled with the mens rea of eliminating a competitor or competition to become an offence under competition law (Act). The Act outlaws predatory pricing as an abuse of dominance. Distinguishing predatory behaviour from legitimate competition is difficult. The distinction between low prices, which result from predatory behaviour and low prices, which result from legitimate competitive behaviour is often very thin and not easily ascertainable. Indeed, it is sometimes argued that predatory behaviour is a necessary concomitant of competition. To quote Professor Jagdish Bhagwati from his book A stream of Windows: The notion that .. companies.. compete in a benign fashion is faintly romantic and fully foolish. What the Cambridge economist Joan Robinson used to call the animal spirits of capitalist entrepreneurs surely are manifest.. The successful always appear more predatory. With success, one gets ones share of envy and resentment (Bhagwati, Jagdish, 1999).

WHEN DOES ABUSE OF DOMINANCE ATTRACT THE LAW?10


To attract the provision of the Act, it needs to be established whether the restraints create a barrier to new entry or force existing competitors out of the market. The key issue is the extent to which these arrangements foreclose the market to manufacturers (inter-brand rivalry) or retailers (intra-brand
10

www.articles.manupatra.com

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rivalry) and the extent to which these raise rivals costs and/or dampen existing competition. The costs of such arrangements need to be weighed against the benefits. For example, some of these restraints help to overcome the free-rider problem and allow for the exploitation of scale economies in retailing. Before proceeding to the next compartment, a listing of factors from the Act constituting dominance" and constituting "abuse of dominance" has been reproduced herein below. Dominance is determined by taking into account one or more of the following factors: market share of the enterprise; size and resources of the enterprise; size and importance of the competitors; economic power of the enterprise including commercial advantages over competitors; vertical integration of the enterprise, or sale or service network of such enterprise; dependence of consumers on the enterprise; 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; 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; countervailing buying power; market structure and size of market; 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; any other factor which the Commission may consider relevant for the inquiry.

Abuse of dominance having an appreciable adverse effect on competition occurs if an enterprise, a) directly or indirectly, imposes unfair or discriminatory(i) condition in purchase or sale of goods or service; or (ii) price in purchase or sale (including predatory price) of goods or service, b) limits or restricts(i) production of goods or provision of services or market therefor; or (ii) technical or scientific development relating to goods or services to the prejudice of consumers; or c) indulges in practice or practices resulting in denial of market access; or 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; or e) uses its dominant position in one relevant market to enter into, or protect, other relevant market. It may therefore be seen that the Act does not frown upon dominance as such but frowns upon abuse of dominance.

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COMBINATIONS REGULATION
Combinations, in terms of the meaning given to them in the Act, include mergers, amalgamations, acquisitions and acquisitions of control, but for the purposes of the discussion that follows, mergers regulation has been reckoned. As in the case of agreements, mergers are typically classified into horizontal and vertical mergers. In addition, mergers between enterprises operating in different markets are called conglomerate mergers. Mergers are a legitimate means by which firms can grow and are generally as much part of the natural process of industrial evolution and restructuring as new entry, growth and exit. From the point of view of competition policy, it is horizontal mergers that are generally the focus of attention. As in the case of horizontal agreements, such mergers have a potential for reducing competition. In rare cases, where an enterprise in a dominant position makes a vertical merger with another firm in an adjacent market to further entrench its position of dominance, the merger may provide cause for concern. Conglomerate mergers should generally be beyond the purview of any law on mergers. A merger leads to a bad outcome only if it creates a dominant enterprise that subsequently abuses its dominance. To some extent, the issue is analogous to that of agreements among enterprises and also overlaps with the issue of dominance and its abuse, discussed earlier. Viewed in this way, there is probably no need to have a separate law on mergers. The reason that such a provision exists in most laws is to pre-empt the potential abuse of dominance where it is probable, as subsequent unbundling can be both difficult and socially costly. Thus, the general principle, in keeping with the overall goal, is that mergers should be challenged only if they reduce or harm competition and adversely affect welfare.

THE ACT ON COMBINATIONS REGULATION


The Act makes it voluntary for the parties to notify their proposed agreement or combinations to the Mergers Commission, if the aggregate assets of the combining parties have a value in excess of Rs. 1000 crores (about US $ 220 million) or turnover in excess of Rs. 3000 crores (about US $ 660 million). The combination as defined by the Act includes mergers, amalgamations, acquisitions of shares, voting rights or assets and acquisitions of control. In the event either of the combining parties is outside India or both are outside, the threshold limits are $500 million for assets and $1500 million for turnover. If one of the merging parties belongs to a group, which controls it, the threshold limits are Rs. 4000 crores (about US $ 880 million) in terms of assets and Rs. 12000 crores (about US $ 2640 million) in terms of turnover. If the group has assets or turnover outside India also, the threshold limits are $2 billion for assets and $6 billion for turnover. For this purpose a group means two or more enterprises which directly or indirectly have: The ability to exercise 26% or more of the voting rights in the other enterprise; or The ability to appoint more than half the members of the Board of Directors in the other enterprise; or The ability to control the affairs of the other enterprise.

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Control (which expression occurs in the third bullet defining group above), has also been defined in the Act. Control includes controlling the affairs or management by

(i) (ii)

one or more enterprises, either jointly or singly, over another enterprise or group; one or more groups, either jointly or singly, over another group or enterprise.

The threshold limits of assets and of turnover would be revised every two years on the basis of the Wholesale Price Index or fluctuations in exchange rate of rupee or foreign currencies. The Act has listed the following factors to be taken into account for the purpose of determining whether the combination would have the effect of or be likely to have an appreciable adverse effect on competition. The actual and potential level of competition through imports in the market; The extent of barriers to entry to the market; The level of combination in the market; The degree of countervailing power in the market; The likelihood that the combination would result in the parties to the combination being able to significantly and sustainably increase prices or profit margins; The extent of effective competition likely to sustain in a market; The extent to which substitutes are available or are likely to be available in the market; The market share, in the relevant market, of the persons or enterprise in a combination, individually and as a combination; The likelihood that the combination would result in the removal of a vigorous and effective competitor or competitors in the market; The nature and extent of vertical integration in the market; The possibility of a failing business;

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The nature and extent of innovation; Relative advantage, by way of the contribution to the economic development, by any combination having or likely to have appreciable adverse effect on competition; Whether the benefits of the combination outweigh the adverse impact of the combination, if any. Before the Act was passed by the Parliament, the draft law was placed on the website and a number of suggestions were received particularly, on the provisions relating to combinations regulation. Many economists, experts and officials in the Government were of the view that at the present level of India's economic development, combinations control should not lead to the shying away of foreign direct investment and participation by major international companies in economic activities through the route of mergers and acquisitions. They suggested that combination approvals (above the specified threshold limits) may not be made mandatory. Notification of combinations may on the other hand be made voluntary, albeit with the risk of the discovery of anti-competitive mergers at a later date with the concomitant cost of demergers etc. Another suggestion was to increase the threshold limit by doubling the limits in the draft law. All these suggestions were given due consideration by the Government and the draft law refined before it was placed before the Parliament. The trigger cause in the aforesaid suggestions was the felt need for companies in India to grow in size in order to become globally competitive. The Act has made the pre-notification of combinations voluntary for the parties concerned. However, if the parties to the combination choose not to notify the CCI, as it is not mandatory to notify, they run the risk of a post-combination action by the CCI, if it is discovered subsequently, that the combination has an appreciable adverse effect on competition. There is a rider that the CCI shall not initiate an inquiry into a combination after the expiry of one year from the date on which the combination has taken effect. The Regulatory Authority, namely, the Mergers Bench of the Competition Commission of India is mandated by the Act to adjudicate on mergers by weighing potential efficiency losses against potential gains. In order that the Competition Commission of India (Mergers Bench) should not delay its adjudication on whether a merger may pass through or may be stopped because of its anti-competitive nature, the Act admonishes the Regulatory Authority to hand in its adjudicatory decision within 90 working days, lest the merger will be deemed to have been approved. The Act also provides for limiting the Regulatory Authority's power to ask for information from the merging parties within a time frame of 15 working days with a corresponding obligation on the merging parties to furnish the information within a further 15 days. Thus by law, the sequencing of the adjudicatory exercise has been set within specific time frames, so that possible delays are avoided. Furthermore, mergers have to be approved by the State High Courts under the Companies Act, 1956. Such approvals take about 6 months to one year or even more and the 90 working days time limit for the Mergers Bench will be subsumed in that period.

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COMPETITION ADVOCACY
In line with the High Level Committee's recommendation, the Act extends the mandate of the Competition Commission of India beyond merely enforcing the law (High Level Committee, 2000). Competition advocacy creates a culture of competition. There are many possible valuable roles for competition advocacy, depending on a country's legal and economic circumstances. A recent OECD Report noted as follows: "In virtually every member country where significant reform efforts have been undertaken, the competition agencies have been active participants in the reform process. This advocacy can include persuasion offered behind the scenes, as well as publicity outside of formal proceedings. Some competition agencies have the power, at least in theory, to bring formal challenges against anticompetitive actions by other agencies or official or quasi-official bodies. More indirect, but still visible, is formal participation in another agency's public hearings and deliberations. What is appropriate depends on the particular institutional setting" (OECD, 1997). The Regulatory Authority under the Act, namely, Competition Commission of India (CCI), in terms of the advocacy provisions in the Act, is enabled to participate in the formulation of the country's economic policies and to participate in the reviewing of laws related to competition at the instance of the Central Government. The Central Government can make a reference to the CCI for its opinion on the possible effect of a policy under formulation or of an existing law related to competition. The Commission is mandated to proffer its opinion to the Central Government within 60 days of receiving the reference. The Commission will therefore be assuming the role of competition advocate, acting pro-actively to bring about Government policies that lower barriers to entry, that promote deregulation and trade liberalisation and that promote competition in the market place. The Act seeks to bring about a direct relationship between competition advocacy and enforcement of competition law. One of the main objectives of competition advocacy is to foster conditions that lead to a more competitive market structure and business behaviour without the direct penalty loaded intervention of the CCI. Under the scheme of the Act, the CCIs opinion will constitute an important input for the Government to finalise its law or policy, in so far as it impacts on competition. In order to promote competition advocacy and create awareness about competition issues and also to accord training to all concerned (including the Chairperson and Members of the CCI and its officials), the Act enjoins the establishment of a fund christened the Competition Fund. The Fund will be credited with the fees received for filing complaints and applications under the law, costs levied on the parties, grants and donations from the Government, and the interest accrued thereon. The four main compartments having been discussed above, a description of how the CCI is designed, follows, which is an important part of the Act.

COMPETITION COMMISSION OF INDIA (CCI)11

11

www.cci.gov.in

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Administration and enforcement of the competition law requires an administrative set up. This administrative set up should be more proactive than reactive for the administration of the competition policy. This is not a mere law enforcement agency. This administrative set up should take a proactive stand to be specified and adopted to promote competition by not only proceeding against those who violate the provisions of the competition law, but also by proceeding against institutional arrangements and public policies that interfere with the fair and free functioning of the markets. It is in this context that the CCI in the Act has been entrusted with the following two basic functions: a) Administration and enforcement of competition law and competition policy to foster economic efficiency and consumer welfare. b) Involvement proactively in Governmental policy formulation to ensure that markets remain fair, free, open, flexible and adaptable.

INVESTIGATION AND PROSECUTION


Adjudicative wing is distinct and separate from the investigative wing in the Act. At the apex level of the investigative wing, there is an official who has been designated as Director General (DG). The Director General will not have suo motu powers of investigation. He will only look into the complaints received from the CCI and submit his findings to it. Investigators will be solely responsible for making enquiries, for examining documents, for making investigations into complaints and for effecting interface with other investigative agencies of the Government including Ministries and Departments. The DG has been vested under the Act with powers, which are conferred on the CCI, namely, summoning of witnesses, examining them on oath, requiring the discovery and production of documents, receiving evidence on affidavits, issuing commissions for the examination of witnesses etc. The Act mandates that the investigation staff would need to be chosen from among those, who have experience in investigation and who are known for their integrity and outstanding ability. They should have knowledge of accountancy, management, business, public administration, international trade, law or economics. Hitherto, in terms of the dispensation under the MRTP Act, they were drawn routinely from those working in the Department of Company Affairs. The Act thus induces professionalism in the investigative wing, a step in the right direction. . Depending on the load, the Government would create Deputy Directors General in all the cities where Benches of CCI are situated. They will investigate the cases referred to them from the Additional (regional) Benches and submit their findings to them direct without necessarily routing it through Director General at Headquarters. The Act envisages one Principal Bench and Additional Benches, besides Merger Bench (es). The schema of placement of the investigating staff and the procedure and drill for submission of their reports to the CCI and its Benches will be laid down, it is expected, by the CCI and the Government, under Statutory Rules, Statutory Regulations or otherwise. It is desirable to prepare guidance manuals spelling out the nature, scope and manner of investigation. By and large, the investigation staff should follow these manuals and any departure therefrom must have the prior approval of the Director General. This is to ensure that there are no fishing and rowing enquiries designed to threaten and harass corporates.

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ADJUDICATION
Central to effective implementation and enforcement of competition policy and competition law is an appropriate competent and effective adjudicative body, in the instant case, the Competition Commission of India. CCI will be the adjudicating body under the Act with autonomy and administrative powers. CCI will be a multi-member body with its Chairperson and Members chosen for their expertise, knowledge and experience in Economics, Law, International Trade, Business, Commerce, Industry, Finance, Accountancy, Management, Public Affairs or Administration. The Act stipulates that the Chairperson and Members shall be selected from those, who have been, or are qualified to be Judges of the High Courts or from those who have special knowledge of any of the disciplines listed above. They should not only have special knowledge in one or more of the aforesaid areas, but also have experience of not less than 15 years therein. Besides, they need to be persons of ability, integrity and standing. Each Bench will have a judicial member, as it will have the power of imposing sentences of imprisonment, in addition to levying fines.

MERGERS BENCH
For the cases of mergers, amalgamations etc. which need to be examined on the touchstone of competition, the Act proposes to have a separate Mergers Bench, which will be a part of the Competition Commission of India. This is to ensure that there is no avoidable delay in dealing with such scrutiny, as delays can prevent bodies corporate from being competitive globally. An important rider in the merger provisions, as noted earlier, is that if the Mergers Bench does not finally decide against a merger within a stipulated period of ninety working days, it would be deemed that approval has been accorded.

COMPETITION COMMISSION OF INDIA AND SELECTION OF CHAIRPERSON AND MEMBERS


In order to ensure competent and effective implementation of competition policy and competition law, it is important and imperative to select suitable persons, suitability having been described in the earlier paragraphs. It cannot be over-emphasised that Government ought to ensure that the CCI is free of political control. While, it is practically difficult to eliminate political favouritism, it can be minimised to a great extent by resorting to what may be described as a Collegium Selection Process. The Act, as passed by the Parliament, has left the selection procedure to the Government, which will therefore frame Rules in this regard. It is believed that the Government has opted for a search committee procedure for the selection of Chairperson and Members.

STATUS OF THE CHAIRPERSON & MEMBERS OF CCI

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The status of the Chairperson and Members of the CCI has been left to the Government for specification by Statutory Rules. It is understood that the Government has prescribed the status of the Chairperson to be equal to that of a Judge of the High Court and that of the Members to be equal to that of a Secretary to the Central Government. Futhermore, according to the Act, the age cap for the Chairperson is 67 years and that for the Members is 65 years. The Act has created a bar for the Chairperson and Members for a period of one year from the date on which they cease to hold office, to accept any employment in, or connected with the management or administration of any enterprise which has been a party to a proceeding before the Commission under the Act.

APPEAL AND REVIEW PROVISIONS


Appeals against decisions and orders of the CCI lie to the Supreme Court within the limitation period of 60 days. Appeals can be on one or more of the grounds specified in Sec. 100 of the Code of Civil Procedure. Thus, the status given to the CCI is very high with only the Supreme Court having the power to overturn its orders. The CCI has power under the Act to review its own order on an application made by the party aggrieved by its order.

EXTRATERRITORIAL REACH
The Act has extra-territorial reach. Its arm extends beyond the geographical contours of India to deal with practices and actions outside India which have an appreciable adverse affect on competition in the relevant market in 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 affect on competition in the relevant market in India, notwithstanding that, an agreement has been entered into outside India; any party to such agreement is outside India; any enterprise abusing the dominant position is outside India; a combination has taken place outside India; any party to combination is outside India; or any other matter or practice or action arising out of such agreement or dominant position or combination is outside India.

The above provisions are based on what is known as the effects doctrine. This doctrine implies that even if an action or practice is outside the shores of India but has an impact or effect on competition in the relevant market in India, it can be brought within the ambit of the Act, provided the effect is appreciably adverse on competition.

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Chapter 5 : The Competion Act, 2002 - Performance Review


(Based on Ministry of Corporate Affairs, Government of India Annual Report 2009-2010)12 In early nineties, when Government of India undertook widespread economic reforms, Indian enterprises started facing the heat of competition from domestic players as well as from global giants, which called for level playing field and investor-friendly environment. It was felt that the existing Monopolistic and Restrictive Trade Practices Act, 1969 (MRTP Act) was not equipped adequately enough to tackle the competition aspect of the Indian economy. Hence, need arose for a new Act, shifting the focus from curbing monopolies to encouraging companies to invest and grow, thereby promoting competition while preventing any abuse of market power. Thus, a new competition law, Competition Act, 2002 was enacted in 2003. In 2007 and 2009, certain amendments were made in the Competition Act. With effect from September 1, 2009, the Competition Act, 2002 superseded the MRTP Act,
12

http://www.mca.gov.in/Ministry/pdf/MCA_AR1011_English.pdf

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1969 which had sought to regulate monopolistic, restrictive, and unfair trade practices, when the MRTP Act was repealed. Later, on October 14, 2009, the Monopolies & Restrictive Trade Practices Commission was also dissolved, and pending investigations and cases were transferred to the CCI and the Competition Appellate Tribunal (COMPAT), respectively. The Competition Act has essentially four components.
It prohibits anti-competitive agreements like cartels, 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; It prohibits abusive behaviour of a dominant firm, who through its position of dominance may restrict markets and set unfair and discriminatory conditions; It regulates mergers and acquisitions of large corporations in order to safeguard competitive markets Mandates competition advocacy

All the four components are interrelated and form an integrated whole. The first three essentially relate to enforcement, while the last one is related to the mandate for promoting competition enshrined in Section 49 of the Act. The Competition Commission of India (CCI) was established under the Competition Act, 2002 for the administration, implementation and enforcement of the Act, and was duly constituted in March 2009. The Government of India set up a Competition Appellate Tribunal (COMPAT) on 19th October, 2009, under the provisions of the Competition Act, 2002 to hear and dispose of appeals against any direction issued or decision made or order passed by the Competition Commission of India. The provisions of the Competition Act 2002 are being implemented in phases. Sections 3 and 4 of the Act (relating to anticompetitive agreements and abuse of dominance) were effectively brought into force in May 2009, along with the enforcement powers of the CCI. Sections 5 and 6, which deal with Indian merger control regime, requiring CCI pre-clearance with prescribed turnover/asset-based threshold limits have yet to come fully into effect. However, the Competition Commission of India (CCI) has the power to regulate mergers or combinations and to reverse mergers or combinations if it is of the opinion that a merger or combination has or is likely to have an Appreciable Adverse Effect (AAE) on competition in India. The Competition (Amendment) Act, 2007 has mandated pre-merger clearances from CCI to ascertain whether a combination has an AAE on competition within India. Combinations include mergers, amalgamations and acquisition of control, shares, voting rights or assets. The Competition Act, 2002, (the Act) has set thresholds below which mergers are outside the jurisdiction of the Commission. The thresholds, given in the Act, for an enterprise having operations only in India are combined assets of Rs. 1000 crore or combined turnover of Rs. 3000 crore. For enterprises having operations in India and outside India, the thresholds are combined assets of US $500 million, including at least Rs. 500 crore in India, or combined turnover of more than US $1500 million, including at least Rs. 1500 crore in India. The thresholds for Groups having operations only in India are Rs. 4000 crore of assets or Rs. 12,000 crore of turnover. For Groups having operations in India and outside India, the thresholds are US $ 2 billion, including at least Rs. 500 crore in India or turnover of US $ 6 billion including at least Rs. 1500 crore in India. The year 2010 saw enforcement provisions of the Act substantively coming in force. Certain key issues, pertaining to the jurisdiction, powers, and obligations towards parties to the investigation etc. of CCI and COMPAT have also been settled by the Supreme Court of India and the Bombay High Court.
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The Competition Commission of India


a)The following tables give an analysis of the cases before the Commission during 200910 and 2010-11 (upto December, 2010).
Table 5.1: Cases before the Commission during the year 2009-10 S. No. Description InforCases Suo Refere- Refere- Refere-nces Total mation Received moto nces nces received Received from cogni- received received from Local u/s 19 MRTPC zance from from Authoon central State rities transfer Govt. Govt. (9) (3) (4) (5) (6) (7) (8) Nil 32 32 17 50 50 07 Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil 82 82 24

(1) (i) (ii) (iii) (iv)

(2) Number of matters pending at the beginning of the year matters Number of received during the year Total number of matters Number of matters in which prima facie violations noticed Number of matters in which no prima facie violations noticed

(v)

05

02

Nil

Nil

Nil

Nil

07

(vi)

Investigation reports received on prima facie matters ordered for (vii) Inquiries conducted

06

Nil

Nil

Nil

Nil

Nil

06

Nil

Nil

Nil

Nil

Nil

Nil

Table 5.2: Cases before the Commission during the year 2010-11 (upto December, 2010)

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S. No.

Description

(1) (i)

(2)

Number of matters pending at the beginning Number of (ii) of the year* matters received during the year**

InforCases Suo Refere- Refere- Refere-nces Total mation Received moto nces nces received Received from cogni- received received from Local u/s 19 MRTPC zance from from Autho-rities on central State transfer Govt. Govt. (9) (3) (4) (5) (6) (7) (8) 82 32 50 Nil Nil Nil Nil 58 Nil 03 01 Nil Nil Nil Nil Nil Nil Nil Nil 62 144 94 50

(iii) Total number of matters 90 50 03 01 (iv) Number of matters in 62 29 03 Nil which prima facie violations noticed (v) Number of matters in 30 20 Nil Nil which no prima facie violations noticed (vi) Investigation reports 40 23 Nil Nil received on prima facie matters ordered for (vii) Inquiries conducted # 22 6 03 Nil * Position before 1.4.2010 ** Position upto 31.12.2010 from 1.4.2010 # Investigation Report from DG awaited

Nil

Nil

63

Nil

Nil

31

b) Framing of Regulations
As per Section 64 of the Competition Act, 2002, the following Regulations have been notified by the Commission and published in the Extraordinary Issue of the gazette of India, Part III. Section 4: 1. 2. 3. 4. 5. 6. 7. Regulations Date of Issue th May, 2009 The Competition Commission of India (Procedure for Engagement of 15 Experts and Professionals) Regulations, 2009 The Competition Commission of India (Meeting for Transaction of 21st May, 2009 Business) Regulations, 2009 The Competition Commission of India (General) Regulations, 2009 21st May, 2009 13th August, 2009

The Competition Commission of India (Lesser Penalty) Regulations, 2009. The Competition Commission of India (General) Amendment 20th August, 2009 Regulations, 2009. The Competition Commission of India (Determination of Cost of 20th August, 2009 Production) Regulations, 2009. The Competition Commission of India (General) Amendment 20th October, 2010 Regulations, 2010.

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c) Research Studies
As a part of capacity building and with the objective to gain insight into the structure of major sectors of the Indian economy, the Commission undertook various research projects/studies in the area of competition policy, economics and competition law since 2003-04. Till now, 18 studies have been completed and circulated amongst various Ministries/Departments and also put on the website of the Commission. The following Market studies were carried out during the year: Study on Competition concerns in Concession Agreements in infrastructure Sectors in association with Claurus Law Associates, New Delhi. Study on Competition Law and Pharmaceutical Industry conducted in association with Centre for Trade and Development, New Delhi

Besides, studies were also carried out in-house on topics like Tyre Industry, Cement Industry, Steel Industry etc.

d) Competition Advocacy
With the objective to create awareness on competition issues, the Commission organizes interactive meetings, workshops and seminars etc. with different regulatory bodies, policy makers, trade organizations, consumer associations and public at large. During the year 2009-10, various programme were organized by the CCI under the auspices of the different High Courts for judiciary and for other Industry and Trade bodies, State and Central Government officials at different locations. During the current year (till 31.12.2010), the following initiatives were taken by CCI under the mandate given to it under Section 49 of the Competition Act, 2002 : i) National Conference on Competition Regime: Benefiting the Consumer was held with Consumer Unity and Trust Society (CUTS) on 20th October 2010. About 100 participants from various consumer institutions from across the country had attended. ii) National Conference on Public Procurement: Achieving Best Value through Competition was held on 8th December 2010 in association with Standing Conference of Public Enterprises (SCOPE), in which 90 top officials attended from Public Sector Undertakings and Central Government Departments/Ministries. iii) Members of the Commission also addressed various seminars/workshops held on competition issues for various stakeholders. iv) A competition advocacy booklet in Hindi language, which has detailed information on role of CCI and competition issues was released to create awareness about competition issues among the masses. Efforts are being made to translate advocacy booklets in other Indian vernaculars in order to attain a regional reach.

e) Internship
As part of its capacity building programme amongst the student community, Commission provides internship facility to them. 20 students (during 2009-10) and 20 students (uptil 31.12.2010) have undergone internship with the Commission on various competition related issues.

f) Capacity Building
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a) Induction Programme: During the year 2009-10, various induction and advance training programmes were conducted in house and though external agencies like DG Comp of European Union, DOJ/FTC of US etc. During the current year (till 31.12.2010) two induction training programmes were organised in-house which were attended by 44 officers. b) Workshop & Training: During 2009-10, a special workshop on Anti-trust, Cartels and Combination issues was organised in collaboration with European Union for the officers of the Commission. During the current year, the following training/workshops were held : i) A training on The Process of Merger Review: A Practical Guide was conducted by DG Competition, European Union in which total of 20 officers attended the same. ii) A training on Merger Investigation: Planning & Conducting was conducted by U.S. Federal Trade Commission in which a total of 21 officers attended the same. iii) A training on Abuse of Dominance Investigation: Planning & Conducting, was conducted by U.S.Federal Trade Commission in which a total of 16 officers attended the same. iv) A training on Horizontal Restraints: Investigation: Planning & Conducting was conducted by U.S.Federal Trade Commission in which a total of 18 officers attended the same. v) Training on Principles, Problems & Lessons Learned was conducted by American Bar Association and International Bar Association, in which a total of 29 officers attended the same. vi) A workshop was organized on Addressing the challenges: An International perspective, conducted by OECD in which a total of 40 officers attended the same. vii) A seminar was organized by CCI on Competition Enforcement which was attended by 49 officers.

Competition Appellate Tribunal


The Competition Appellate Tribunal is vested with powers: To hear and dispose of appeals against any direction issued or decision made or order passed by the Competition Commission of India established under the Competition Act, 2002. To adjudicate on claim for compensation that may arise from the findings of the Commission or the orders of the Appellate Tribunal in an appeal against any findings of the Commission and pass orders for the recovery of compensation under that Act.

After the dissolution of the erstwhile MRTP Commission, the Government of India vide Ordinance dated 14th October, 2010 vested COMPAT with powers to hear and dispose of pending cases, being dealt with by the then MRTP Commission. About 1825 pending cases were transferred to this Tribunal, out of which this Tribunal has disposed of 736 cases till the end of December, 2010. Since the establishment of this Tribunal, it has received 23 appeals (one appeal in 2009 and 22 appeals in 2010) against the decision of Competition Commission of India. Out of these appeals filed against that decision, four appeals have been disposed of by this Tribunal and remaining appeals are under adjudication.

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Chapter 6 : Case Studies 13


(Based on Section 66 - Competition Act, 2002)

1. Shri V. Ramachandran Reddy against HDFC Ltd.14

This case was the first premier example of transfer of cases pending before the DG (I&R) to the Competition Commission under Section 66 Competition Act, 2002, the section repealing the MRTP Act.
13 14

www.manupatra.com Case Nos.7/28, 25/28, 8/28, 9/28 & 10/28 Decided by Order Dated 31.05.2011

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In the following case a total of five cases were transferred to the Competition Commission namely: 1. Shri V. Ramachandran Reddy against HDFC Ltd. (Case No.7/28) 2. Ms. Swapna Muthukrishnan against HDFC Ltd. (Case No.25/28) 3. Shri A.K.Baviskar against ICICI Bank Ltd. (Case No.8/28) 4. Shri Charanjit Singh against ICICI Bank Ltd. (Case No.9/28) 5. Shri Shiv Kumar Gupta against ICICI Bank Ltd. (Case No.10/28) In the following case the petitioners right to decline in interest on home loans was demanded. After analyzing the entire material available on record the Commission came to the conclusion that no violation of either Section 3 or Section 4 of the Competition Act. 2002 was established against the opposite parties. In view of the above findings the matter relating to the said information was disposed off accordingly and the proceedings were closed forthwith.
2. Interglobe Aviation Ltd against The Secretary, Competition Commission of India15

This case serves as a landmark judgement and was the first instance when the Commission was challenge on its power to transfer cases pending under DG (I&R) under section 66(6) Competition Act, 2002. The first submission by the petitioner before the commission stated that the CCI had no jurisdiction whatsoever to deal with RTPE No. 05 of 2009 because this was a matter pending before the erstwhile MRTP Commission. It is submitted that under Section 66 (3) CA all matters which were pending before the MRTP Commission have to be transferred to the Competition Appellate Tribunal (`CAT') whereas in the instant case the matter was erroneously transferred by the DG(I&R) to the CCI under Section 66(6) CA. The submission is that since the MRTP Commission had suo motu taken cognizance of the alleged restrictive trade practice under Section 11(1) of the MRTP Act, and further directed the DG(I&R) to investigate and submit a report to it, this was a matter pending before the MRTP Commission. Therefore, even if the investigation by the DG(I&R) was incomplete on the date of the repeal of the MRTP Act followed by the notification of the amended Section 66 of the Competition Act, the matter had to be necessarily placed before the CAT for further directions to the W.P.(C) Nos.6805 & 6808/2010 Page 4 of 16 DG(I&R). The Court observed that all investigations and proceedings which were pending before the DG(I&R), MRTP Commission as on the date of CAA 2009, whether by way of a reference made to it by the MRTP Commission under Section 11(1) or taken up by the DG(I&R) suo motu under Section 11(2) of the MRTP Act, would stand transferred to the CCI in terms of Section 66(6) of the CA. That is what has happened in the present case. There is, therefore, no illegality in the action of the DG, CCI in transferring the investigation pending before the DG(I&R), MRTP Commission to the CCI.

3. Gujarat Guardian Limited versus The Competition Commission of India and Ors.16

In the following case The Petitioner Gujarat Guardian Ltd. ('GGL') challenges an order dated 19th May 2010 passed by Respondent No. 1 Competition Commission of India ('CCI') and seeks the quashing of all proceedings consequent to notice dated 29th July 2010 issued to it by the Director General ('DG'), CCI. The main point urged is that the proceedings before the CCI are entirely without jurisdiction. Most of the pleadings of the petitioner were based on their citation of the case Interglobe Aviation Ltd against The Secretary, Competition Commission of India.
15 16

173(2010)DLT581, 2010(119)DRJ467 2011CompLR0069(Delhi)

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An article was published in Outlook Business in 2008 suggesting the existence of cartel-like behavior in the float glass industry in India, of which GGL is a part. It was alleged that there existed an oligopoly which was dominated by three big manufacturers of float glass, viz., Saint Gobain India, Asahi India Glass and GGL. On the basis of the above article, the Director General (Investigation and Research) ('DG (I and R)') acting under Section 11(2) of the Monopolies and Restrictive Trade Practices Act, 1969 ('MRTP Act') undertook a suo moto preliminary investigation in September 2008. On 22nd September 2008 Monopolies and Restrictive Trade Practices Commission ('MRTPC') issued a direction instituting an inquiry under Section 11(1) of the MRTP Act whereby the DG (IandR) was asked to carry out an investigation and submit a preliminary report within 90 days. It was urged that Section 66(6) of the Competition Act, did not make it clear whether the CCI should proceed only under the provisions of the MRTP Act as it stood on the date of its repeal or should exercise its powers under the Competition Act. The Court held that since the investigation was incomplete the matter was rightly transferred to the CCI. On further consideration of the material on record the DG, CCI formed a prima facie opinion to proceed under Section 26(1) of the CA. This was not contrary to Section 66(6) of the CA. It is possible in the course of investigation that the DG, CCI forms a prima facie opinion to proceed under the provisions of the CA, 2002 itself. There is no illegality per se in such action of the DG, CCI.

Chapter 7 : Conclusion
To conclude my report I would like to point out some my own interpretations and observations based on the two acts namely The Monopolistic and Restrictive Trade Practices Act, 1969 and The Competition Act, 2002. To begin with the older act, i.e. the MRTP Act was enacted in 1969 and had its guidance from the Directive Principles of State Policy under Article 39(c) of the Constitution of India which provided that the States shall strive to secure that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment. The preamble to the MRTP Act rests on this very provision of the Constitution of India. The Main objective of the act being: i) prevention of concentration of economic power to the common detriment;
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ii) iii) iv) v)

control of monopolies; prohibition of Monopolistic Trade Practices (MTP); prohibition of Restrictive Trade Practices (RTP); prohibition of Unfair Trade Practices (UTP).

The MRTP Act, 1969 was amended in 1991 as a part of the new economic reforms set in motion by the Government of that day. The amendments reset the objectives enshrined in the original statute of 1969. Out of the five objectives aforesaid in the previous paragraph, the first two have been deemphasized, after the 1991 amendments to the MRTP Act. The emphasis has not only shifted to the three last mentioned objectives but they have been re-emphasised. In the context of the objective (ii) above, to the extent monopolies tend to bring about Monopolistic Trade Practices, the MRTP Act continues to exercise surveillance which existed prior to the 1991 amendments. 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 Government in May 2000 [the report will be referred to hereinafter as High Level Committee (2000)]. The draft competition law was drafted and presented to the Government in November 2000. After some refinements, following extensive consultations and discussions with all interested parties, the Parliament passed in December 2002 the new law, namely, the Competition Act, 2002. There are three areas of enforcement that provide the focus for most competition laws in the world today. Agreements among enterprises Abuse of dominance Mergers or, more generally, combinations among enterprises

Pursuing the same and to meet global standards even our Competition Act can be broadly divided into four components: Anti - Competition Agreements Abuse of Dominance Combinations Regulation Competition Advocacy

Thus, when we reach to a conclusion to see whether the new act out shines or takes a quantum leap over its predecessor, i would like to put it in a different term The Act is a new wine in a new bottle. The differences between the old law (namely the MRTP Act, 1969) and the new law (the Competition Act, 2002) may perhaps be best captured in the form of a table displayed below:

MRTP ACT, 1969

COMPETITION ACT, 2002

Based on the pre-reforms scenario

Based on the post-reforms scenario

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2 3 4 5 6 7 8 9 10 11 12 13 14

Based on size as a factor Competition offences implicit or not defined Complex in arrangement and language

Based on structure as a factor Competition offences explicit and defined Simple in arrangement and language and easily comprehensible

14 per se offences negating the principles of 4 per se offences and all the rest subjected to natural justice rule of reason. Frowns upon dominance Registration of agreements compulsory No combinations regulation Frowns upon abuse of dominance No requirement of registration of agreements Combinations regulated threshold limit. beyond a high by a the

Competition Commission appointed by the Competition Commission selected Government Collegium (search committee) Very little administrative and financial Relatively more autonomy autonomy for the Competition Commission Competition Commission for

No competition advocacy role for the Competition Commission has competition Competition Commission advocacy role No penalties for offences Reactive and rigid Unfair trade practices covered Penalties for offences Proactive and flexible Unfair trade practices omitted (consumer fora will deal with them)

The Act is therefore a new wine in a new bottle. Wine gets better as it ages. The extant MRTP Act 1969 has aged for more than three decades and has given birth to the new law (the Act) in line with the changed and changing economic scenario in India and rest of the world and in line with the current economic thinking comprising liberalisation, privatisation and globalisation.

Bibliography 1) MRTP Act, 1969 Bare Act 2) Competition Law, 2002 Bare Act 3) A Functional Competition Policy In India Edited By Pradeep S Mehta 4) Competition Act , 2002 By Eastern Book Company
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MRTP ACT AND COMPETION ACT: A REVIEW 5)

Lectures On Company Law and Competition Act by K.S. Anantharaman

6) Law And Practice Of Competition Act, 2002 by Suresh T. Viswanathan


7) 8) 9)

www.google.co.in www.cci.gov.in www.scribed.com

10) www.mca.gov.in
11) 12) 13) 14) 15)

www.wikipedia.org www.vakilno1.com www.manupatra.com www.icrpc.org www.bussinessgyan.com

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