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Dr.

KUMUDHA RATHNA

THE COMPETITION LAW


INTRODUCTION:

GENESIS: The Govt. decided to liberalize its economic policy in


1991 because of the financial crisis & opened up its economy to the
international market, inviting private investment, i.e., LPG. Due to
this it had to fulfil obligations under World Trade Organization
(WTO), General Agreement on Trade & Services (GATS), Trade
Related Aspects of Intellectual Property Rights (TRIPS) etc.

MRTP Act, 1969 was enacted mainly to contain the concentration of


economic power & therefore wasnt suited to deal with issues
relating to preservation & protection of competition, in the new
business environment.

Also, as certain provisions in the MRTP Act were obstructive to


private investment, they were deleted. (Eg: Prior approval of the
Govt. for enterprises slowed the entry of foreign enterprises into
India, consequently the provisions dealing with monopolistic
enterprises seeking prior approval were deleted from the Statute).
Only powers to Order division of undertaking or to direct severance
of inter-connection of undertakings were retained, but these
powers were never used. Thus the MRTP became a toothless tiger.

In the wake of influx of large MNCs, on opening up of the economy


of the country & the enlargement of the range of goods/services
offered to the consumer-a specific Law for preserving competition
became essential.
Dr. KUMUDHA RATHNA

Also, all over the world, it was found that private monopolies can
be detrimental to national economy & control was required. Fair &
free competition is required for growth of a healthy economy.

The Central Govt. in 1999, appointed a high-level committee (The


Raghavan Committee) on competition policy & Law, to study the
Indian economic scene & make recommendations for a competition
policy, to provide for a basic legislation to meet the needs of the
nation, pertaining to this aspect.

The TOR (Term of Reference) to the Raghavan Committee (RC)


were as follows:-

o Suitable legislative framework (in the light of international


developments) to meet the needs of promoting competition;
o Laws relating to mergers & demergers;
o Such legis framework could entail a new Law OR appropriate
amendments to the MRTP Act, 1969.

SALIENT FEATURES OF THE REPORT OF THE RAGHAVAN


COMMITTEE:

The term Competition has been used sparsely in the MRTP


Act (only in 2 places);
Lack of precise definitions of crucial terms such as-
dominance, cartel, collusion, boycott, refusal to deal, bid
rigging, predatory pricing etc. These are necessary to
effectively detect such behaviour & impose sanctions against
them. Lack of precise definitions had led to different judicial
interpretations, sometimes contradictory.
So, MRTPC (Monopolies & Restrictive Trade Practices
Commission) is constrained to fit anti-competitive behaviour
Dr. KUMUDHA RATHNA

into 1 or more of the provisions of the Law in the absence of


precise definitions.
The term Cartel not mentioned or defined in any
section/clause.
Existing Law inadequate to deal with implementation of the
WTO agreements.
No merger control provisions. Committee recognized the
necessity of having specific merger control provisions at par
with other modern competition Laws.
Provisions dealing with unfair trade practices overlap with
similar provisions in the Consumer Protection Act, 1986 &
MRTP Act, 1969.
Emphasised about anti-competitive practices as follows,
...the MRTP Act, in comparison with Competition Laws of
many countries, is inadequate for fostering competition in the
market & trade & for reducing, if not eliminating, anti-
competitive practices in the countrys domestic &
international trade.

Thus, the RC declared the MRTP Act to be falling short of


addressing competition and anti-competitive practices.

SUGGESTION OF RC:

Desired that the new Law focus on preventing anti-


competitive practise, ...the only legitimate goal of
Competition Law is the maximization of economic welfare.
Competition authority should be governed by established
competition principles.
Dr. KUMUDHA RATHNA

There is to be a balance between over-intervention &


exception from sanction in the name of Public interest.
Essential to have merger control provisions in the new
legislation. But, suggested a soft approach, i.e., voluntary
notification for mergers.
That government enterprises & departments should be
brought under the purview of Competition Law. Only
exception-sovereign functions of the government (Eg:
Defence).
Policy of purchase/price preference to government owned
enterprises was recommended to be discontinued. (This
recommendation was in spite of the fact that many countries
exempt government enterprises from purview of the
Competition Law).
There should be no distinction between ultimate consumer &
intermediate consumer.
While the Committee presumed some anti-competitive
behaviour to be injurious to competition, it recognized the
primacy of rule of reason test for the rest. The primacy of rule
of reason test over per se rule is universal among modern
competition Laws; the latter being invoked only against hard-
core anti-competitive behaviour (Eg: Cartelization).
Suggested the setting up of a specialized agency to try
competition cases & opined that this is suitable in developing
countries (though, in many countries competition cases are
tried by Courts).
Recommended in detail regarding the admn setup of an
(i)independent & autonomous competition authority-stating
that its main objectives should be to (ii)administer the
Dr. KUMUDHA RATHNA

competition Law & engage proactively in Governmental


policy formulation (proceedings shd be (iii)transparent). That
the authority shd be (iv)manned by experts in various fields
who can be removed only with the concurrence of the SC of
India. (v)Jurisdiction-shd be extra-territorial. (vi)Powers to-
punish the guilty & levy fines.
Much emphasis on competition advocacy by competition
authority (Reason-lack of/low awareness of competition
issues among stakeholders).
Need for a Competition Law Tribunal (CLT) (Competition
Commission of India-CCI) that will act as a watchdog for the
introduction & maintenance of competition policy.
Emphasised the importance of co-ordination of different
policy measures of the Govt. for effective implementation of
competition policy.
There should be progressive reduction & ultimate elimination
of reservation of products for the small-scale industries & the
handloom sector.
Proposed legislation should cover all industries in the public
& private sector & professional services.

Based on its analysis, The RC found it more expedient to have a


new competition Law. This report formed the genesis of the
modern Competition Law, vide a Central Law, The Competition Act,
2002.

The Competition Law (i.e., Competition Act, 2002) was enacted in


January.2003-after taking into consideration the recommendations
of the (i)Raghavan Committee & deliberations of the (ii)Standing
Committee on Finance.
Dr. KUMUDHA RATHNA

The Act was introduced at a time when large MNCs were taking
advantage of Indias liberalized economic policy, permitting greater
participation of overseas companies in economic activities in India.
Indian industry, used to protection, belatedly recognized the gross
inequality between them & the MNCs-in terms of size & experience
& Govt. endeavoured to set up a level playing field by means of this
Enactment.

The progress of this Act was stymied thru BRAHIM DUTT V. UOI
filed in the SC-challenging the authority of the Central Govt. to
appoint the Chairperson & member of the CCI (Qualification for the
Chairperson-A person of ability, integrity & standing who-(i)has
been/is qualified to be a Judge of HC or (ii)has spl knowledge of &
professional experience of not less than 15 yrs in international
trade, economics, business, commerce, Law, Finance,
accountancy, management, industry, public affairs, admn or in any
other matter, which in the opinion of the C.Govt. may be useful to
the Commission).

Ground of Challenge-

a) CCI envisaged by the Act was more of a judicial body having


adjudicatory powers & applying the Doctrine of Separation of
Powers (recognized in the Indian Constitution)-the right to
appoint the judicial members of the Commission should rest
with the Chief Justice (CJ) of India or his nominee.
b) Chairman of the Commission shd necessarily be a retired CJ of
SC/HC-to be nominated by the CJ of India or by a Committee
presided over by the CJ of India.
Dr. KUMUDHA RATHNA

c) Appointment of a civil servant, sans reference to the head of the


Judiciary was argued as being undesirable in Law, considering
the purpose of the Act & the functions to be discharged by the
Competition Commission.

Central Governments representation-

a) C.Govt. intended to make certain amendments to the Act carry


into effect the selection of the Chairperson & members of the
Commission by a Committee presided over by the CJ of India or
his nominee.
b) Chairman of the Commission would be an expert in the field &
that it wasnt necessary for him to be a Judge of the SC/HC.

SC was satisfied with the response of the C.Govt. & closed the WP
on Jan.2005 sans pronouncing on the issues raised & left open all
questions regarding the validity of the Enactment to be decided
after the amendments of the Act, if there came up any challenge to
the amended Act.

In the light of the Order of the SC, the C.Govt. introduced into
Parliament-the Competition (Amendment) Bill, 2006. The bill was
referred to the Parliamentary Standing Committee on Finance
(2006-07) & after taking into account its recommendations, the
Competition (Amendment) Bill, 2007 was introduced into
Parliament & after approval by both Houses, the Competition
(Amendment) Act, 2007 received the assent of the President on
24th.Sept.2007.

PRINCIPAL AMENDMENTS are as follows:

i. Composition of the Competition Commission;


Dr. KUMUDHA RATHNA

ii. Selection Committee for Chairperson & members;


iii. Appointment of the Secretary/experts/officers & other
employees of the Commission;
iv. Provision that a mandatory notice shall be given to the
Commission by any person/enterprise proposing to enter into a
combination to which the Act applies (previously the notice was
optional);
v. Establishment of the Competition Appellate Tribunal (CAT)-
(quasi-judicial body);
vi. Its composition/selection of Chairperson & members/procedure
for appeals;
vii. Provision for appeal to the SC (against the Orders of the CAT);
viii. Repeal of the MRTP Act & dissolution of the MRTP Commission.

DISTINCTION BETWEEN MRTP ACT & COMPETITION ACT:

Sl.
MRTP ACT COMPETITION ACT
No.

1. Regarding problems of monopoly Considers these issues as economic


& anti-competitive practices from a issues to be dealt with from an economic
Legal perspective. viewpoint.
2. MRTP Commission was conceived Competition Commission conceived as a
as a quasi-judicial body, regulatory body of experts in economic
comprising of both judicial & non- affairs looking at the issues from the
judicial members (headed by a angle of their economic impact on
person who is/was a Justice of business etc.
SC/HC).
3. Commission was sitting as No benches, as there will be no
Benches. complaint, but only information or
reference.
4. Hearings held of parties. No hearings, only meetings.
To ensure that Legal issues were also given importance, the Competition Appellate
Dr. KUMUDHA RATHNA

Tribunal (CAT) was established with provision for a further appeal to SC. Thus,
Competition Act is an improvement on MRTP Act.

OBJECTIVES OF COMPETITION ACT:

As per the Preamble to the Act -

1) Prevent practices having an adverse effect on competition;


2) Promote & sustain competition in markets;
3) Protect the interests of consumers;
4) Ensure freedom of trade carried on by other participants in
markets in India;
5) For dealing with matters connected therewith or incidental.

ANTI COMPETITIVE AGREEMENTS:

One of the objects of the Competition Act as stated in the Preamble


is to prevent practices having adverse effect/s on competition. The
principal objective of suppliers (of goods/services) who are in a
position to manipulate the market-is to maintain their profits at pre-
determined levels & ultimately reduce & eliminate competition.

Usual modes resorted towards achieving this end are-Egs:


Agreements for price-fixing, limiting supply of goods/services,
dividing the market etc.
DEFINITION OF TERMS:
1) AGREEMENT: [S.2(b)]:
(Includes)-any-arrangement, understanding, action-in concert.
a. Neednt be a formal arrangement (Eg: Even a gentlemens
ag would come within the term understanding);
b. Neednt be in writing;
Dr. KUMUDHA RATHNA

c. Whether or not it is intended to be enforceable by Legal


proceedings.
(Eg: The info forming the basis for action (against the cartel) may
be contained in minutes of meetings, memoranda, records of
telephone conversations, correspondence etc CASE LAW-
LOMBARD CLUB, Re).

Parties: could be-bet-(i)Enterprises; (ii)Association of enterprises;


(iii)Persons; (iv)Association of persons or (v)Combi of any of these
entities.
Subject Matter Of Agreement: Production, supply, distribution,
storage, acquisition, control of goods or provision of services.
Where these agreements cause or is likely to cause an appreciable
adverse effect on competition within India, it is prohibited &
declared void [S.3(1)].
FACTORS TO BE CONSIDERED (by the Commission) in
determining whether an ag has an appreciable adverse effect on
competition: [S.19(3)]:
a) Creation of barriers to new entrants in the market;
b) Driving existing competitors out of the market;
c) Foreclosure of competition by hindering entry into the market;
d) Accrual of benefits to consumers;
e) Improvements in production/distribution of goods/provisions of
services;
f) Promotion of technical/scientific/economic developments by
means of production/distribution of goods/services.
2) CARTEL: [S.2 (c)]:
(Includes) An association of producers, distributors, sellers,
traders, service providers-who-by ag amongst themselves-limit,
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control/attempt to control-production, distribution, sale, price of,


trade in goods or provision of services.
Cartel is a presumed anti-competitive agreement.
Effect:
o Restriction of competition;
o Consequent loss of benefits to the consumer that an
unhindered market wouldve offered.
o Depending upon the size of the members of a cartel & the
volume of business they control, the harm they could cause
to the economy would be huge.
CASE LAW:
MADRAS JEWELLERS & DIAMOND MERCHANTS

ASSOCIATION, Re Trade Association asking its members

not to sell below the rates announced by it, with a threat of


expulsion in the event of non-compliance-HELD-Its a cartel.
DGIR v. MODI ALKALI OBSEVATION-3 essential

ingredients of cartel are-(i)Parity of prices; (ii)Ag by way of


concerted action suggesting conspiracy; (iii)To gain
monopoly/restrict/eliminate competition.
SUMITOMO CORPN IN, Re HELD-Cartelisation imposes

unjustified cost on consumers. Price fixing is illegal per se,


therefore, further enquiry on the issue of intent or the anti-
competition effect is not required.
HARIDAS EXPORTS v. ALL INDIA FLOAT GLASS

MFGRS ASSOCIATION HELD-Protecting inefficient

industry is not public interest & in such cases cartel is


Dr. KUMUDHA RATHNA

permissible-OBSERVATION-MRTP Commission cant pass an


injunction for imports at predatory prices-If the cartel is
selling goods to India (at lower prices) & still making profit, it
will not be in the interest of general body of consumers in
India to prevent import of such goods. The era of
protectionalism is now coming to an end.
Expln: Meaning-predatory pricing: Its the practice of selling a
product/service at a very low price, (i)intending to drive
competitors out of the market, or (ii)create barriers to entry for
potential new competitors. If competitors cant sustain equal or
lower prices without losing money, they go out of business or
choose not to enter the business. The predatory merchant then
has fewer competitors or is having monopoly & can later raise the
prices (to even supra competitive pricing level).
The predatory merchant undergoes short-term pain for long-term
gain. But, the predator would succeed only in adopting this
strategy only if it is (i)substantially stronger than its competitors &
when (ii)barriers to entry are high, preventing new entrants from
replacing others driven out, thereby allowing supra competitive
pricing to prevail long enough to dwarf the initial loss.
Thus predatory pricing is a risk, may not always work out. Eg: (i) In
U.S. Herbert Dow (founder of Dow Chemical Company) not only
found a cheaper way to produce bromine (bromine extraction from
bromide using electrolysis) but also defeated a predatory pricing
attempt by the Govt. supported German Cartel Bromkonvention
which objected to his selling in Germany at a lower price &
retaliated by flooding the U.S. market with below-cost bromine, at
an even lower price than Dows. But, Dow simply instructed his
agents to buy up at the very low price, then sell it back in Germany
Dr. KUMUDHA RATHNA

at a profit but still lower than Bromkonventions price. In the end,


the cartel couldnt keep up selling below cost, and had to give in.
(ii) Alleged predatory pricing is Microsoft released their web-
browser IE for free. As a result the market leader & primary
competitor Netscape was forced to release Netscape Navigator for
free in order to stay in the market. IEs free inclusion in Windows
led to it quickly becoming the web browser used by most computer
users.
3) ENTERPRISE: [S.2 (h)]:
A person/dept of Govt.-who/which-
Is/has been engaged in any-activity relating to-
o production, storage, supply, distribution, acquisition or
control of article/goods/services (of any kind) OR-
o in investment OR
o in the business of-acquiring, holding, underwriting or
dealing with shares/debentures/other securities-
of a body corporate (directly/indirectly or thru 1 or more of its units,
divisions or subsidiaries)-
Whether the enterprise & these units etc are located in the
same or different places.
DISCLUDES-Any activity of the Govt. related to sovereign functions
of the Govt. including all activities carried on by the depts. of the
Central Govt. dealing with atomic energy, currency, defence &
space.
[Explns: Activity-includes-profession/occupation;
Article-includes-new article;
Services-includes-new services;
Dr. KUMUDHA RATHNA

Unit/division-includes-plant/factory-established for-production,
storage, supply, distribution, acquisition, control-of any article,
goods-any branch/office/established for provision of any service.
Goods-as defined in the Sale of Goods Act, 1930 & includes-
Products manufactured/processed/mined;
Debentures/stocks/shares (after allotment);
In relation to goods supplied, distributed or controlled in
India, goods imported into India].
No Exemption to: Public Sector Undertakings (PSU) & enterprises
controlled by Govt.
4) PERSON: [S.2 (l)]:
Includes-
Individual;
HUF;
Company;
Firm;
Association of persons or body of individuals (whether
incorporated or not in India or outside India);
Any corpn established by/under any Central, State or
Provincial Act or Govt. Co. as defined in s.617 of the
Companies Act, 1956;
(S.617: Where not less than 51% of the paid-up share capital
of the Co. is held by the C.Govt. or any S.Govt. or by both of
them. Same applies to corpns established by any Central,
State, Provincial Act.)
Any body corporate incorporated by/under the Laws of a
country outside India;
Dr. KUMUDHA RATHNA

Co-operative society registered under any Law relating to co-


operative societies;
Local authority;
Every artificial juridical person (not comprised in any of the
above sub-clauses).
[Expln: As s.2(h) defines enterprise as including profession or
occupation-members of any profession would have to conform to
the provisions of the Competition Act.]
S.32: Empowers the Commission to inquire into anti-competitive
acts taking place outside India-but-having an effect on competition
in India.
5) GOVERNMENT: [S.2(h)]:
A person/dept. of Govt.-engaged in the supply of goods/services.
INCLUDES All economic activity other than the exceptions-
carried on by the Govt. or Govt. undertaking, PSU (by whatever
names called).
EXCLUDES (i)Any activity of the Govt. relatable to the sovereign
functions of the Govt.; (ii)Including all activities carried on by the
depts. of the C.Govt dealing with atomic energy, currency, defence
& space.
6) PRICE: [S.2(o)]:
INCLUDES-any form of valuable consideration (direct/indirect)-
which in effect relates to the sale of goods or to the performance of
any services-even though ostensibly relating to any other
matter/thing.
If the parties agree-may be a deferred payment.
7) SERVICES: [S.2(t)]:
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Of any description-made available to potential users (INCLUDES-


services in connection with business of any industrial/commercial
matters).
Eg: Banking, insurance, chit funds, real estate, storage, transport,
construction, advertising, conveying news/info, education,
boarding, lodging etc.
CASE LAW:
TMA PAI FOUNDATION v. STATE OF KARNATAKA

HELD-Education is a service. Even if there is any doubt about


whether education is a profession or not, it does fall within
the meaning of the expression.
P.A. INAMDAR v. STATE OF MAHARASHTRA HELD-

Education which is a useful activity & irrespective of whether


for charity/profit-is an occupation.
8) TRADE: [S.2(w)]:
Trade/business/industry/profession/occupation-relating to-
production/supply/distribution/storage/control of goods/services.
[Trade] PRACTICE (habitual/custom) [S.2(l)]: Practice relating to the
carrying on of any trade by a person/enterprise.
PERSUMED ANTI-COMPETITIVE PRACTICES:
Any ag entered into between enterprises/associations of
enterprises/persons/associations of person/s & enterprise/s
including cartels (engaged in identical/similar trade of
goods/services)-decision taken which-
i. Directly/indirectly determines purchase/sale prices;
ii. Limits/controls-production/supply/markets/tech development
/investment or provision of services;
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iii. Shares the market or sources of production/services by way


of-allocation of geographical area of market/types of goods/
services/# of customers in the market/any other similar way;
iv. Directly/indirectly results in bid rigging or collusive bidding
Shall be presumed to have an appreciable adverse effect on
competition.
EXCEPTION: Doesnt apply to-Joint venture agreements-IF such
ags increase efficiency in production/supply/distribution/storage/
acquisition or control of goods/services.
Onus of proof: lies on the deft to prove that there isnt any
appreciable adverse effect on competition.
PROHIBITION IF THE AGREEMENT AFFECTS COMPETITION:
HORIZONTAL (CARTELS) & VERTICAL RESTRAINTS:
VERTICAL RESTRAINTS: [S.3(4)]:
Any agreement amongst enterprises/persons-at different stages or
levels of-the production chain in diff markets-in respect of
production, supply, distribution, storage, sale, price of, trade in-
goods/services-shall be an agreement in contravention of S.3(1)-IF
such ag causes or is likely to cause an appreciable adverse effect
on competition in India (i.e., by applying the rule of reason).
There could be other types of ags falling u/s.3(4) as those stated in
the sub-section are not exhaustive, i.e., gives an inclusive
definition of each of the vertical restraints, meaning-there could be
other vertical restraints also.
(Simple) DEF: Where the parties (to the ag) are in diff stages/levels
of the production chain, this practice is called a vertical restraint.
WISCONSIN ELECTRIC CO v. DUMORE CO (OHIO)

OBSERVATION-The equitable Doctrine of Unfair Competition is


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not confined to cases of actual market competition between similar


products of different parties, but extends to all cases in which 1
party fraudulently seeks to sell his goods as those of another.
RELEVANT MARKET: [s.2(q)]:
The market which may be determined by the Commission with
reference to the relevant product market or the relevant geographic
market or with reference to both the markets.
TYPES:
RELEVANT GEOGRAPHIC MARKET: S.2(r): A market comprising
the area in which the conditions of competition for supply of goods
or provision of services or demand of goods/services are distinctly
homogeneous & can be distinguished from the conditions
prevailing in the neighbouring areas.
Eg: If customer preferences for a particular quality/price of the
product are different in a neighbouring area, the composition of the
geographical market is different in the 2 places & what shd be
considered as the relevant geographic market in that case is only
the area where the conditions of competition are homogeneous.
RELEVANT PRODUCT MARKET: S.2(s): A market comprising all
those products/services which are regarded as inter-changeable or
substitutable by the consumer, by reason of characteristics of the
products/services, their prices & intended use.
Eg: (Case Law United States v. Du Pont & Co) Relevant market for
Cellophane is the market for flexible packaging materials, as
cellophane is interchangeable with numerous other materials, & is
therefore a part of the market for flexible packaging materials.
Quote regarding interchangeability-from above case This
interchangeability is largely gauged by the purchase of competing
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products for similar uses considering the price, characteristics &


adaptability of the competing commodities.
If the effect of an agreement (includes-any arrangement,
understanding or action in concert) is such that it will significantly
reduce the level of competition existing at the time the agreement
is given effect, the ag may be stated as anti-competitive.
PRO-COMPETITIVE BENEFITS OF VERTICAL RESTRAINTS:
Sometimes, a vertical restraint, depending upon the structure of the
market for a product, may be shown to be pro-competitive without
any harm to the competitive process. The restraints may be
necessary in some situation to ensure that the sales support to the
retailers extended by the manufacturers may not be exploited by
the free riders.
AGREEMENTS LIKELY TO ADVERSELY AFFECT COMPETITION:
A. RESTRICTIONS ON OUTPUT/SUPPLY: EXCLUSIVE
DISTRIBUTION AGREEMENT: [S.4-Expln (c)]:
Agreements that limit/control-production, supply, markets,
technical development, investment or provision of services is a
presumed anti-competitive agreement.
As stated in the MRTP Act it means-Ags to restrict/with hold/limit-
output/supply of goods or allocate any market or area/s for the
disposal of goods.
CASE LAW:
DGIR (Director General Of Investation & Registration) v.

BAYER (INDIA) LTD Condition in ag with distributor that he

will not make supplies to chemists, Doctors & Govt. or private


institutions even though he accepts the order. Seller will sell
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directly to these customers without any commission to the


distributor-HELD-Anti-competitive ag.
DGIR v. TITAN INDUSTRIES There was a clause in

agreement with franchisee that the franchisee will not deal in


products/goods of a similar nature-for a period of 3 years from
the date of determination of ag within radius of 5 Kms from
showroom-HELD-It is restrictive trade practice.
DGIR v. RAJSHREE CEMENT HELD-An agreement

containing the clause that the dealer will concentrate on a


particular area is permissible if there is no prohibition on him
from effecting sales in other areas.
DELHI CLOTH & GENERAL MILLS Co LTD; DGIR v.

MODI INDUSTRIES LTD; DG v. BHARAT COMMERCE &

INDUSTRIES LTD; PIRAMAL HEALTH CARE LTD, In Re

HELD-In ag with agents, restrictions as to dealing in similar


goods or as to territory-permissible-REASON-To avoid unhealthy
competition between agents.
B. TIE-IN-SALE: (or-Full line forcing): [S.4-Expln (a)]:
Includes any ag requiring (compulsorily forcing) a purchaser of
goods-to purchase some other goods along with the goods he
wishes to purchase (as a condition of such purchase).
A product/service is to be treated as being the subject of a tie-in-
agreement-when its supply is offered on the condition that the
buyer who ordered for the product/service (the basic product) must
also purchase some other product/service.
The product/service required by the buyer is called-tying product.
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The one that is forced on the buyer is called the-tied


product/service.
Hence, the buyer is required (compelled) to buy also a product or
service he doesnt need-thereby forced to incur unnecessary
expenditure.
But-under Competition Law-reasoning is different-it is
objectionable on the ground that it reduces competition in the
supply of the tied product.
CASE LAW:
In Re, R.P. ELECTRONICS Asking customer to enter into

service contract while buying goods.


CHANAKYA & SIDDHARTA GAS Co, In Re Requiring

customer to buy gas stove while giving gas connection.


DGIR v. STATE BANK OF INDIA Bank asking person to

keep fixed deposit with Bank while allotting him a locker (as
there is direction of RBI not to insist on bank deposit for locker).
AMAR JEEVAN PUBLIC SCHOOL, In Re School making it

compulsory to buy uniforms & books only from its own shop.
UNITED RADIO & TELEVISION Co, In Re Compelling

customer who is buying TV to also buy voltage stabiliser from


the seller.
KHANDELWAL PHOTOSTAT v. KORES INDIA LTD

Insisting on service contract at the time of sale of goods.


TCI, In Re Not tie-in sales-egs: (a)Insistence by car

manufacturer that, during the warranty period, air-conditioner can


be fitted to car only by authorised dealer to ensure that improper
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air-conditioner doesnt affect performance of car during warranty;


(b)Manufacturer requiring distributors to maintain minimum
quantity of spares for machinery & equipment supplied by them-to
ensure prompt service; (c)Transporter charging additional amount
for goods carried at carriers risk-there was no compulsion on
customers-they could send goods either at owners risk or at
carriers risk. Hence, charging extra amount by transporter for
taking goods at his risk is not tie-in sales.
C. EXCLUSIVE SUPPLY AGREEMENT: [S.4-Expln (b)]:
Includes-any agreement restricting in any manner the purchaser in
the course of his trade from acquiring or otherwise dealing in any
goods other than those of the seller or any other person.
D. EXCLUSIVE DEALING AGREEMENT: Was a RTP under MRTP
Act.
Meaning Not to deal with goods other than those of seller.
CASE LAW:
BHARATIA CUTLER HAMMER LTD, In Re Manufacturer

of A type of scooter stipulating that dealer of A should not


deal in any other type of scooter, i.e., manufacturer asking
dealer not to deal in similar products of his competitor,
directly/indirectly. Condition that dealer shouldnt deal in others
goods and discontinuation of supplies on the ground that dealer
also deals in products of suppliers competitors HELD-RTP.
DGIR v. STUDDS ACCESSORIES (P) LTD Buyer asking

manufacturer not to manufacture identical goods for any other


buyer without consent of buyer.
Dr. KUMUDHA RATHNA

DGIR v. MUNDIPHARMA AG Agreement that distributor will

purchase goods only from the manufacturer or from other as


may be nominated by him.
VADILAL ENTERPRISES LTD. In re Territorial restrictions,

i.e., not to sale beyond prescribed territory.


DGIR v. KOTHARI ELECTRONICS HELD-Exclusive dealing

cannot be permitted unless it is shown that it is in public


interest.
EXCLUSIVE DEALING AG-PERMITTED:
CASE LAW:
TATA ENGINEERING (TELCO) v. RRTA (Registrar Of

Restrictive Trade) Exclusive dealing & territorial restrictions

were held reasonable as it led to prompt after-sales service to


buyers & hence were permitted.
GUJARAT BOTTLING Co LTD v. COCA COLA SC-HELD-

Negative covenant restraining franchises from dealing with


competing goods during term of franchise agreement is valid-
not RTP.
E. RESALE PRICE MAINTENANCE [S.4-Expln (e)]: DIRECTLY OR
INDIRECTLY DETERMINING PRICE [S.3 (3)]:
Meaning: Not to allow resale below certain price or not to sell
above a certain price.
Includes any ag to-sell goods on condition that the prices to be
charged on the resale by the purchaser shall be the prices
stipulated by the seller unless it is clearly stated that prices lower
than those prices may be charged.
Dr. KUMUDHA RATHNA

CASE LAW:
CALCUTTA GOODS TRANSPORT ASSOCIATION v.

TRUCK OPERATORS UNION Association of lorry owners

fixing freight rates & not allowing members of association to


charge price lower than that fixed by association is RTP.
DGIR v. INFAR (INDIA) LTD HELD-If the price indicated is

Maximum Retail Price-it is obvious that the retailers are


authorised to sell the product at prices below the maximum. It is
not necessary to specifically state that price below the max retail
price can be charged.
REGISTRAR v. BENNETT COLEMAN & Co LTD HELD-

Newspapers are exempt from s.39 & 40 (i.e., they can prescribe
minimum price). REASON-This is because speed is essence of
publishing a newspaper. Allowing retailer or vendor to bargain
the price would delay the process of reaching consumers fast.
This will reduce circulation, which will lead to reduction in
quality & also increase in costs. This will not being long term
interest of public.
DIRECT PRICE MAINTENANCE PERMITTED: Permitted.
Meaning: Where the manufacturer sells goods through its own
retail shops & fixes prices to be charged in such shops (Eg: Bata,
Gwalior etc retail shops). Fixing price in such shops is not
prohibited.
F. REFUSAL TO DEAL: [S.4-Expln (d)]:
Includes-any agreement which restricts/likely to restrict-by any
method-the persons/classes of persons to whom goods are sold or
from whom goods are bought.
Dr. KUMUDHA RATHNA

AGREEMENT NOT ANTI-COMPETITIVE: [S.3(5)(i)]:


AGREEMENTS PERMITED BY LAW:
Right of any person to-restrain (infringement of)-impose
reasonable conditions (for protecting any of his rights conferred
upon him under any of the following Acts)-not anti-competitive.
The Copyright Act, 1957.
The Patents Act, 1970.
The Trade & Merchandise Marks Act, 1958 OR The Trade
Marks Act, 1999.
The Geographical Indications Of Goods (Registration &
Protection) Act, 1999.
The Designs Act, 2000.
The Semi-conductor Integrated Circuits Layout-Design Act,
2000.
RIGHT FOR EXCLUSIVE EXPORT: [S.3(5)(ii)]:
No restriction on-the right of any person to export goods from
India-to the extent to which the ag relates exclusively to the-
production/ supply/ control of goods/ distribution/ services-is not
anti-competitive.
FACTORS TO BE CONSIDERED WHILE DECIDING EFFECT OF
COMPETITION:
The Commission shall have due regard to the following factors-
while determining whether an ag has an appreciable adverse effect
on competition within India (u/s.3):-
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;
Dr. KUMUDHA RATHNA

Improvements in production/distribution of goods or provision


of services;
Promotion of technical, scientific & economic development by
means of production/distribution of goods/services.
RULES FOR DETERMINING EFFECT OF COMPETITION:
A. THE RULE OF REASON:
Restrictions have to be considered on a case to case basis, i.e.,
basing on the facts of each case, the market & the existing
competition.
Because the per se rule-if applied literally, would render even
normal trade as restraint of trade & as restraint of trade is the very
essence of every contract, American Courts developed this rule of
reason.
What determines the issue (in each case) is the actual or probable
restraint on competition in the relevant market.
The rule of reason-explained by US SC in BOARD OF TRADE OF

CITY OF CHICAGO v. US Every agreement concerning trade,

every regulation of trade, restrains. To bind, to restrain, is of their


very essence. The true test of legality is whether the restraint
imposed is such as merely regulates & perhaps thereby promotes
competition or whether it is such as may suppress or even destroy
competition.
This principle has been accepted by the SC of India also.
CASE: TATA ENGINEERING (TELCO) v. REGISTRAR OF

RESTRICTIVE TRADE AGREEMENT Telco had entered into

agreements with its (Truck) dealers. Some of the clauses were-


Dr. KUMUDHA RATHNA

o Dealer will not directly/indirectly sell the Tata trucks outside


the territory assigned to him (i.e.. geo limits);
o Dealer will maintain organisation/s for sale/service within his
territory-to the satisfaction of TELCO;
o Dealer will not sell, directly/indirectly-trucks of any other
manufacturer.
Telco argued as follows-
o To ensure equitable distribution of trucks so that the trucks
reach even remote places like Nagaland etc the first
restriction. If not, trucks will be concentrated in large metro-
centres only where demand is heavy.
o Sales tax rates vary from State to State. If there is no
territorial restriction, business will be concentrated in the
States where sales tax rate is lower.
o Prompt/efficient after sales service is vital for the truck user.
Dealer has to maintain at all times an adequate stock of
spares, good service facilities & trained mechanics. This
would cost Rs.5 Lakhs. Consumer interest demands that he
gets good after sales service.
o After sales service needs specialisation which would not be
possible if the dealer deals in trucks of other makes.
Thus ultimately-consumers benefit if the clauses are included in
the agreement. HELD-SC accepted these contentions & declared
that restrictions imposed by TELCO do not amount to RTP.
OBITER DICTA-Ag which restrains/ binds-persons/ places/ prices
wouldnt be per se, bad. The ? is whether the restraint is such as to
regulate & thereby promote competition OR suppresses
competition. Hence, applying rule of reason-matters to be
Dr. KUMUDHA RATHNA

considered-(a)Facts particular to business; (b)Conditions before &


after restraint & (c)Probable effects of restraint.
B. THE PER SE RULE:
In U.S. in the initial stages of the admn of Sherman Act, 1980-there
was a blanket prohibition of all contracts/combinations in the form
of Trust in restraint of trade/commerce. These were regarded as
per se bad.
Thus-it is unnecessary to consider-whether the agreement or
clauses there in-limit/restrict competition.
This is based on-established experience of their nature to produce
anti-competitive effects. Hence its not necessary to prove anti-
competitive effect of these clauses.
CASE: NORTHERN PAC. R Co v. US There are certain

agreements or practices which because of their pernicious effect


on competition & lack of any redeeming virtue are conclusively
presumed to be unreasonable & therefore illegal without elaborate
inquiry as to the precise harm they have caused or the business
excuse for their use.
In India-these 2 rules are applied as follows-ambivalently:
a) S.3(3)(a) to (d) Following clauses in ags presumed to have an
appreciable adverse effect on competition-
(a)Directly/indirectly determines purchase/sale prices;
(b)Limits/controls-production/supply/markets/tech
development/investment/services;
(c)Allocation of geographical area of market/type of
goods/services or # of customers in the market or any
similar way;
Dr. KUMUDHA RATHNA

(d)directly/indirectly results in big-rigging or collusive


bidding.
b) S.3(4)(a) to (e) will be examined by applying Rule of Reason-in
determining whether they cause or likely to cause an
appreciable adverse effect on competition in India.
(a)Tie-in-ag;
(b)Exclusive supply ag;
(c)Exclusive distribution ag;
(d)Refusal to deal;
(e)Resale price maintenance.

ABUSE OF DOMINANT POSITION (AOD):

Definitions:

DOMINANT POSITION [S.4(2) Expln (a)]:

Definition:
The dictionary meaning of the word dominant is
overriding/influential.
In simple terms, abuse of dominant position refers to the conduct
of an enterprise that enjoys a dominant position (as defined by the
Act).
In substance-dominant position-means the position of strength
enjoyed by an enterprise that enables it to act independently of
competitive forces prevailing in the relevant market. Such an
enterprise will be in a position to disregard market forces &
unilaterally impose trading conditions, fix prices etc.
The elements that constitute a dominant position are:-
A position of strength;
That position being enjoyed in a relevant market in India;
Dr. KUMUDHA RATHNA

Such a position that gives the enterprise the power to


operate independently of competitive forces in the relevant
market (i.e., it can at will, disregard market forces/conditions
& impose its own trading conditions (Eg: prices at which the
enterprise is prepared to supply goods/services).
Explanation to S.4(2)(a) exempts such unfair/discriminatory trading
conditions/prices [& predatory pricing-S.4(2)(a)(i & ii)]-stating that-
when enterprises are engaged in bonafide competition &
readjusting their trading strategies to meet the terms of offers of
competitors in a market as it evolves, there is no abuse by any of
the enterprises. They are only responding to the market situation.
(Eg: If prices fall in the market, for reasons not the action of an
enterprise, a reduction in the price by that enterprise to match its
prices to the new prices cannot be termed unfair pricing or
predatory pricing).
Concept of DP as explained in HOFFMANN-LA ROCHE & CO. AG.
BASLE v. COMMISSION OF THE EUROPEAN COMMUNITIES IN
BRUSSELS:-The concept of abuse is an objective concept
relating to the behaviour of an undertaking in a DP which is such
as to influence the structure of a market where, as a result of the
very presence of the undertaking in question, the degree of
competition is weakened and which, through recourse to methods
different from those which condition normal competition in
products/services on the basis of the transactions of commercial
operations, has the effect of hindering the maintenance of the
degree of competition still existing in the market or the growth of
that competition.
A position of strength, enjoyed by an enterprise, in the relevant
market, in India, which enables it to-
Dr. KUMUDHA RATHNA

i. Operate independently of competitive forces prevailing in the


relevant market OR
ii. Affect its competitors/consumers/relevant market in its
favour.

Thus a dominant enterprise is one that has the power to disregard


market forces (Competitors, customers & others) & to take
unilateral decisions that would benefit itself & also, in the process,
cause harm to the process of free competition, injuring the
consumers by saddling them with higher prices, limited supplies
etc.

This capacity to engage in the market is called Market Power.

GROUP [S.5 Expln (b)]:

2 or more enterprises which, directly/indirectly are in a position to-

i. Exercise 26% or more of the voting rights in the other


enterprise OR
ii. Appoint more than 50% of the members of the Board of
Directors in the other enterprise OR
iii. Control the management/affairs of the other enterprise.

CONSUMER [S.2(e)]:

Any person who-

i. Buys any goods for a consideration which has been paid or


promised or partly paid & partly promised or under any
system of deferred payment-includes any user of such
goods other than the person who buys such goods-when
such use is made with the approval of such person, whether
Dr. KUMUDHA RATHNA

such purchase of goods is for resale or for any commercial


purpose or for personal use;
ii. Hires/avails of any services for a consideration which has
been paid or promised or.....and includes any beneficiary of
such services other than the person who hires or avails of
the with the approval of the first mentioned person whether
such hiring or availing of services is of any commercial
purpose or for personal use.

DOMINANT POSITION ITSELF ISNT PROHIBITED:

Some acts are bonafide & not taken to hamper competition.


S.4(2)(a) exempts such unfair or discriminatory trading
conditions/prices or predatory pricing referred to in S.4(2)(a)(i) &
(ii), setting out those practices as an abuse of dominant position,
from being considered as an abuse of a dominant position, when
they are adopted to meet competition. REASON-When enterprises
are engaged in bonafide competition & readjusting their trading
strategies to meet the terms of offers of competitors in a market as
it evolves, there is no abuse of any of the enterprises. They are
only responding to the market situation.

Eg: If prices fall in the market, for reasons not the action of an
enterprisea-a reduction in the price by that enterprise to match its
prices to the new prices cannot be termed unfair/predatory pricing.

FACTORS TO BE CONSIDERED WHILE DECIDING WHETHER AN


ENTERPRISE HAS A DOMINANT POSITION (DP):

The Commission shall (while inquiring whether an enterprise


enjoys a DP or not u/s.4) have due regard to all or any of the
following factors-
Dr. KUMUDHA RATHNA

a) Market share of the enterprise;


b) Size & resources of the enterprise;
c) Size & resources of the competitors;
d) Economic power of the enterprise including commercial
advantage over competitors;
e) Vertical integration of the enterprises or sale or service
network of such enterprises;
f) Dependence of consumers on the enterprise;
g) Monopoly/dominant position whether acquired as a result of
any Statute or by virtue of being a Govt. Company or a public
sector undertaking or otherwise.
h) Entry barriers including barriers such as regulatory barriers,
financial risk, high capital cost of entry, marketing entry
barriers, technical entry barriers, economics of scale, high
cost of substitutable goods or service for consumers;
i) Countervailing buying power;
j) Market structure & size of market;
k) Social obligations & social costs;
l) Relative advantage, by way of the contribution to the
economic development, by the enterprise enjoying a
dominant position having or likely to have appreciable
adverse effect on competition.
m) Any other factor which the Commission may consider
relevant for the enquiry.

WHAT IS ABUSE OF DOMINANT POSITION [S.4(2)]:

If an enterprise or group follows any of the following practices-it is


abuse-NO further PROOF of any damage/loss is required.
Dr. KUMUDHA RATHNA

Unfair/Discretionary Conditions In Purchase/Sale [S.4(2)(a)]:

Unfair/discretionary conditions in purchase/sale of


goods/services OR
Price in purchase/sale (including predatory price) of
goods/services is abuse of dominant position.
Expln: Above practice isnt abuse if adopted to meet
competition.

Limiting/Restricting Production/Development [S.4(2)(b)]:

Limiting/restricting-production of goods or provision of


services or market there for OR
Limiting/restricting-technical or scientific development
relating to goods or services to the prejudice of consumers, is
an abuse of DP.

Denial Of Market Access [S.4(2)(c)]:

(in any manner), is abuse of dominant position.

Supplementary Obligations Unconnected To Main Contract:


[S.4(2)(d)]

Making conclusion (formation) of contract subject to acceptance by


other parties who are not connected to the nature/subject matter of
the contract-is abuse of dominant position.

Using Dominant Position To Enter Another Market: [S.4(2)(e)]

Using dominant position in one relevant market to enter into


another relevant market-is abuse of dominant position. (Eg:
Microsoft used its DP in disk operating system to dominate
browser market & ruined Netscape).
Dr. KUMUDHA RATHNA

DIVISION OF ENTERPRISE ENJOYING DOMINANT POSITION: [S.28


Incorporated into the Act in 2009]]

The Competition Commission may direct-division of an enterprise


enjoying dominant position to ensure that an enterprise enjoying
dominant position, doesnt abuse it.

Such Order may provide for any/all of the below mentioned


matters:-

Transfer/vesting of pty/rights/liabilities/obligations;
Adjustment of contracts either by discharge or reduction of
liability/obligation or otherwise;
Creation/allotment/surrender/cancellation of any shares /
stocks or securities;
Formation/winding-up of an enterprise or the amendment of the
MoA or AoA or any other instrument regulation the business of
any enterprise;
Extent to which, & the circumstances in which, provision of the
Order affecting an enterprise may be altered by the enterprise &
the registration thereof;
Any other matter which may be necessary to give effect to the
division of the enterprise.

No Compensation to Officer of Company [s.28(3)]:

No Officer of a company who ceases to hold office as such in


consequene of the division of an enterprise shall be entitled to
claim any compensation for such cesser. This is not withstanding
any other Law for the time being in force OR in any contract OR in
MoA OR AoA.
Dr. KUMUDHA RATHNA

INQUIRY INTO AGREEMENTS-AS TO-ABUSE OF DOMINANT


POSITION:

Enquiry by CCI:

CCI may enquire-into-any alleged contravention of provisions of


Ss.3(1) &/or 4(1)-

Suo Motu OR
On receipt of any info (in the manner & with fee as determined
by regulations)-from any person/consumer/their association or
trade association OR
On a reference made to it by C.Govt/St.Govt/Statutory
authority [S.19(1)].

Director General has not the power to enquire on his own.

Procedure For Enquiry u/s.19: (S.26)

o On receipt of info or suo motu-if CCI opines that there exists a-


prima facie case..
o Shall issue a direction (as per Regulation.18 of CCI (General)
Regulations, 2009) to the Director General (DG) to cause an
investigation to be made into the matter. This direction shall be
deemed to be commencement of an inquiry u/s.26.
o If on such receipt of info or suo motu-if CCI opines that there
exists no prima facie case-shall close the matter forthwith &
pass such Orders as it deems fit; Copy of the Order to be sent to
C.Govt/St.Govt/Statutory Authority/parties concerned (as per
Regulation.19 of CCI (General) Regulations, 2009).
Dr. KUMUDHA RATHNA

o DG shall submit a report of his findings-within such period as


may be specified by the CCI..CCI may forward a copy of the
report to the parties concerned.
o If investigation was made on ref by C.Govt/St.Govt.Statutory
Authority-CCI shall forward a copy of report of DG to concerned
Authority.

Investigation & report by DG shall be as per Regulation.20 of CCI


(General) Regulations,2009.

o If report of DG states that there is no contravention of provisions


of Competition Act, the CCI shall invite objections from C.Govt
/St.Govt/Statutory Authority/Parties Concerned.
o If after consideration of objections/suggestions-CCI agrees with
the recommendations of the DG-it shall close the matter
forthwith & pass such Orders as it deems fit.
o Copies of Order shall by communicated to concerned to the
parties.
o If CCI opines that further investigation is called for-May-
Direct DG for further investigation OR
Cause further enquiry to be made OR
Itself enquire into the contravention as per provisions of Act.
o Further enquiry by CCI: If DG-opines (report) that there is a
contravention of any provisions of the Act & the CCI also opines
similarly-CCI shall conduct such enquiry.
o Order by CCI after enquiry: May pass all or any of the following
Orders:-
Order to discontinue agreement/abuse & not re-enter such
agreement;
Dr. KUMUDHA RATHNA

Penalty S.27-upon each of the parties to the


agreement/abuse-as CCI deems fit-BUT shall not be more
than 10% of the average of the turnover for the immediately
preceding 3 financial yrs [S.27(b)]
If Cartel-penalty is equivalent to 3 times of the amount
of profits made out of such ag by cartel or 10% of the
avg of the turnover of the cartel in the immediately
preceding 3 financial yrs..whichever is higher- will be
imposed on each producer, seller, distributor, trader,
service provider included in the cartel
If penalty is proposed to be imposed on a person-
show cause notice duly signed by Secretary shall be
given asking for submission of explanation-in writing-
within 15 days.
CCI may direct that the agreement be modified to the extent &
in the manner as maybe specified by CCI [S.27 (d)].
Other Orders & payment of costs [S.27(e)].
Order against any group company: If the enterprise which
violated the provisions of Competition Act (i.e., Ss.3-4) is a
member of the group & if other members of the group are also
responsible for the contravention, the CCI can pass Orders
against any member of the group [S.27-Proviso].

CASE LAW:

HOFFMANN-LA ROCHE & CO. AG, BASLE v.

COMMISSION OF THE EUROPEAN COMMUNITIES IN

BRUSSELS Held (by The European Commission)-


Dr. KUMUDHA RATHNA

Roche was in a dominant position within the common market,


on the markets for certain vitamins, abused that position by
concluding with 22 purchasers of these vitamins, agreements
which contained an obligation upon them, or the grant of
fidelity rebates offering them an incentive, to buy all or most
of their requirements of vitamins exclusively, or in preference
from Roche. Obiter dicta-Very large shares in the market in
themselves, save in exceptional circumstances, evidence of
the existence of a DP.
Exclusive purchase contracts & the fidelity rebates offered to
the purchasers amounted to abuse of this dominant position
because they distorted competition between producers in so
far as they deprived the customers of Roche of the
opportunity of choosing their suppliers.
The effect of the contract was to apply dissimilar conditions
to equivalent transactions, viz, Roche would be charging 2
diff prices for the same quantity of the same product,
depending upon whether the buyer was prepared to forego
purchasing from Roches competitors.

Court Explained-An undertaking which has a very large market


share & holds it for some time, by means of the volume of
production & the scale of the supply which it stands for-without
those having much smaller market shares being able to meet
rapidly the demand from those who would like to break away from
the undertaking which has the largest market share-is by virtue of
that share in a position of strength which makes it an unavoidable
trading partner & which, already because of this secures for it, at
Dr. KUMUDHA RATHNA

the very least during relatively long periods, that freedom of action
which is the special feature of a DP.

Further the Court listed the relevant factors in determining the


existence of a DP-

Relationship between the market shares of the undertaking &


its competitors;
Technological lead of an undertaking over its competitors;
Existence of a highly developed sales network;
Absence of potential competition.
COMPAGNIE MARITIME BELGE TRANSPORTS SA &

OTHERS v. COMMISSION OF THE EUROPEAN

COMMUNITIES The members of Associated Central West

Africa Lines (CEWAL) & 2 other shipping conferences


brought this action contesting before the Court the decision
of the Commission & the Court of 1st Instance. The
Commission had decided that all the shipping conferences
had violated Article 81(1) of the EEC (European Economic
Community) Treaty, by entering into non-competition
agreements with 1 another, imposing on themselves a
restraint to the effect that each member would refrain from
operating as an independent shipping company (outsider) in
the area of activity of the others. HELD This was abuse of
their collective dominant position by the members of CEWAL-
with the intention of eliminating the principal independent
competitor-by
o Participating in the implementation of the co-operation ag
with Ogefrem;
Dr. KUMUDHA RATHNA

o Modifying its freight rates by departing from the tariff in


force in order to offer rates.

It was argued that in order to show that DP was shared by more


than 1 undertaking a close economic link bet them had to be
established.

Court Ruled-

DP may be held by 2 or more economic entities legally


independent of each other, provided that from an economic
point of view they present themselves or act together on a
particular market as a collective entity.
It should be ascertained whether the undertakings constitute
a collective entity vis-a-vis their competitors / trading
partners & consumers for a particular market & if that
collective entity actually holds a DP & whether its conduct
constitutes abuse.

Court held that the co-operation agreement with Ogefrem


amounted to abuse of DP.

EUROPEMBALLAGE CORPN & CONTINENTAL CAN

COMPANY INC v. COMMISSION OF THE EUROPEAN

COMMUNITIES Continental was already enjoying a DP

through the control of 1 company, in a substantial part of the


common market for certain types of containers. HELD-Abuse of
DP by the acquisition by Continental, through its subsidiary,
Europemballage, by approximately 80% of the shares &
convertible debentures of Thomassen & Drijver-Verbliva-this
Dr. KUMUDHA RATHNA

practically eliminated in a substantial part of the common


market. Though the subsidiary had a separate Legal personality,
its conduct could be attributed to the parent company,
particularly when in essentials it follows the directives of the
parent company.
TETRA PAK INTERNATIONAL SA v. COMMISSION OF

THE EUROPEAN COMMUNITIES the Tetra Pak group

specialized in equipment for the packaging of liquid or semi-


liquid food products in cartons (covering both aseptic & non-
aseptic packaging sectors).Tetra Pak held 90-95% of the market
in the aseptic sector & 50-55% in the non-aseptic sector. The
complainant Elopak, held 27%. The complaint by Elopak Italia
before EC was that Tetra Pak imposed unfair conditions on the
supply of machines for filling cartons & that the sale of cartons
& equipment, in certain cases were at predatory prices. HELD
Contracts for the sale/lease of Tetra Pak equipment for
manufacturing cartons contained several clauses found to be
anti-competitive. Main such clauses were:-
o Buyers of Tetra Pak equipment were prohibited from
changing the configuration of the equipment bought.
o They were also not allowed to add any part or accessory to
that equipment.
o Tetra Pak reserved to itself the exclusive rights to inspect
the equipment, maintain & repair it & to supply spare parts.
o The IPR in relation to any improvement made to the
product by the buyer was to be assigned to Tetra Pak.
Dr. KUMUDHA RATHNA

o The purchaser from Tetra Pak was to ensure that his buyer
assumed his obligations to Tetra Pak. Breach of this
condition entailed a penalty.

Also, given the almost complete domination of the aseptic


markets by Tetra Pak, thanks to this position in this market, it could
concentrate its efforts on the non-aseptic market by acting
independently of the other economic operators, and placed it in a
situation comparable to that of holding a DP on the markets in
question, as a whole.

COMBINATIONS:

Take-over, amalgamation, mergers etc are some of the means of


increasing market dominance.

Competition Act intends to exercise control over such mergers &


amalgamations, with a view to ensure that such amalgamations &
mergers are not anti-competitive.

COMBINATION-MEANING:

The acquisition of 1 or more enterprises by 1 or more persons OR


mergers/amalgamation of enterprises shall be treated as
combinations..in the following instances:-

a) Acquisition of large enterprises: An acquisition where the


parties (acquirer & enterprise) whose control/shares/voting
rights/assets have been/being acquired-jointly have
i. In India-assets of value of more than Rs.1K crores / turnover
more than Rs.3K crores OR
ii. In & outside India, in aggregate, assets of the value of more
than $500 milion-including at least Rs,.500 crores in India /
Dr. KUMUDHA RATHNA

turn-over more than $1,500 million-including at least Rs.1,500


crores in India

Assets/turn-over exceeding specified limits: If after acquisition, the


joint assets/turn-over increases the aforesaid limits, it will be a
combination.

If the acquirer already had the assets/turnover-any further


acquisition will be combination.

Type of Combination Assets/turnover in India Assets/turnover in or


outside India
Any Acquisition-where- Joint assests-over-Rs.1K Joint assets-over $500
acquirer+enterprise jointly Crores/turnover over Million-including at least
have - [S.5(a)(i)] Rs.3K Crores Rs.500 Crores in India OR
turnover more than $1,500
Million-including at least
Rs.1,500 Crores in India.
Acquisition by group of Assets over Rs.4K Crores Joint assets-over $2
enterprise [S.5(a)(ii)] / turnover over Rs.12K Billion-including at least
Crores 500 Crores in India /
turnover more than $6
Billion-including at least
Rs.1,500 crores in India.
Acquisition by a person of Joint assets over Rs.1K Joint assets over $500
an enterprise-when such Crores/turnover over Million / turnover $1,500
person is having Rs.3K Crores. Million.
direct/indirect control over
another enterprise
engaged in production /
distribution / trading of
similar / identical /
Dr. KUMUDHA RATHNA

substitutable
goods/service) [S.5(b)(i)]
Acquisition by a group with Group assets over Rs.4K Group assets over $2
similar / identical / Crores / turnover over Billion /turnover over $6
substitutable goods / Rs.12K Crores Billion.
services [S.5(b)(ii)]
Merger / amalgamation of Combined assets over Combined Assets over
2 enterprises (goods / Rs.1K Crores / turnover $500 Million / turnover
services may be similar / over Rs.3K Crores. over $1,500 Million
dissimilar) [S.5(c)(i)]
Merger / amalgamation in Combined assets over Combined assets over $2
a group (goods / services Rs.4K Crores / turnover Billion / turnover over $6
maybe similar/dissimilar) over Rs.12K Crores. Billion.

CALCULATION of VALUE OF ASSETS [S.5(c) Explanation]:

The value of assets shall be determined by taking the book value of


the assets as shown, in the audited boks of a/c of the enterprise, in
the financial year immediately preceding the financial year in which
the date of proposed merger falls, as reducd by any depreciation, &
the value of assets shall include the brand value, value of Good-will
or value of rights, patent, permitted use, collective mark, registered
proprietor, registered trade mark, registered user, homonymous
geographical indication, geographical indications, design or layout-
design or similar oher commercial rights, if any referred to in S.3
(5).

EFFECT OF INFLATION ON VALUE OF ASSETS/TURNOVER [S.20


(3)]:

The Central Govt. shall, on the expiry of every 2 years-in


consultation with the CCI-by notification-enhance/reduce-on the
Dr. KUMUDHA RATHNA

basis of the wholesale price index/fluctuations in exchange rate of


rupees/foreign currencies-the value of assets or the value of
turnover, for the purposes of that section.

REGULATION OVER COMBINATIONS [S.6 (1)]:

No person/enterprise shall enter into a combination which causes


or is likely to cause an appreciable adverse effect on competition
within the relevant market in India & such a combination shall be
void. (S.6 came into effect on May,2009).

PROVISON DOESNT APPLY TO PFI/FII [S.6 (4)]:

The provisions of S.6 do not apply to share subscription or


fianancing facility or any acquisition, by a public financial
institution, FII, bank or venture capital fund, pursuant to any
covenant of a loan agreement or investment agreement.

Public Financial Institution: means such an institution specified


under s.4A of the Companies Act, 1956 (Includes a State Financial,
Industrial or Investment Corpn - S.2(o).

As per s.4A of the Companies Act-all bodies (eg. ICICI, IFCI, IDBI,
LIC, UTI) are Public Financial Institutions. Also includes
Securitisation Company & Asset Reconstruction Company
registered with RBI under Securitisation Act, 2002.

MANDATORY NOTICE TO COMMISSION:

Any person/enterprise-who/which proposes to enter into a


combination-shall give notice to the Commission-in the
(prescribed) form & fee-disclosing details of the proposed
combination-within 30 days of
Dr. KUMUDHA RATHNA

o Approval of the proposal relating to merger/amalgamation


(as per s.5(c) by Board of Directors of the enterprise
concerned with such merger/amalgamation OR
o Execution of any agreement/document for acquisition (as
per s.5(a) or acquiring of control referred to in s.5(b).

COOLING PERIOD OF 210 DAYS: after the notice. Combination


cant become effective during the cooling period.

PENALTY FOR NOT GIVING NOTICE u/s.6 (2) [S.43A]:

If any person/enterprise fails to give notice to the Commission u/s.6


(2) of the Competition Act-the Commission shall impose on such
person/enterprise-a penalty which may extend to 1% of the total
turnover or the assets, whichever in higher, of the combination.

Show cause Notice [Regulation 48 of Competition Commission of


India (General) Regulations, 2009]: If penalty is proposed to be
imposed by Commission on a person-showcause notice duly
signed by Secretary shall be given-asking for submitting
explanation in writing within 15 days. Penalty shall be imposed only
after giving opportunity of personal hearing to the person.
PROCEDURE AT COMMISSION AFTER RECEIVING NOTICE:
On receipt of notice [u/s.6(2)]-examine the notice & form prima facie
opinion [as provided in s.29(1)]-proceed as per provisions of s.29-
31.
S.29(1): CCI has to form a prima facie opinion-whether a
combination is likely to cause/has caused-an appreciable adverse
effect on competition within the relevant market in India. If yes-
issue a notice to the parties, to show cause.
Dr. KUMUDHA RATHNA

Combination not effective for 210 days from date of notice, or till
CCI issues order u/s.31:
The combination shal not come into effect until 210 days or order
of Commission u/s.31is recd, whichever is earlier.
U/s.31, Commission can either-
Approve the combination or
Order that the combination shall not be effective or
Propose modifications in the combination.

FACTORS TO BE CONSIDERED [by CCI] IN DETERMINING


ADVERSE EFFECT OF COMBINATION: [S.20 (4)]
a) Actual/potential level of competition thru imports in the market.
b) Extent of barriers to entry to the market.
c) Level of combination in the market.
d) Degree of countervailing power in the market.
e) Likelihood that the combination would result in the parties to the
combination being able to significantly & sustainably increase
prices/profit margins.
f) Extent of effective competition likely to sustain in a market.
g) Extent to which substitutes are available or likely to be available
in the market.
h) Market share, in the relevant market, of the persons/enterprises
in a combination, individually/combination.
i) Likelihood that the combination would result in the removal of a
vigorous & effective competitor/s in the market.
j) Nature & extent of verticals integration in the market.
k) Possibility of a failing business.
l) Nature & extent of innovation.
Dr. KUMUDHA RATHNA

m) Relative advantage, by way of the contribution to the economic


development, by any combination having or likely to have
appreciable adverse effect on competition.
n) Whether the benefits of the combination outweigh the adverse
impact of the combination, if any.
ENQUIRY INTO COMBINATION BY CCI & ORDER:
CCI can enquire-
Suo motto
On receipt of notice.
Enquiry Into Combination By Commission-On Its Own:
Upon its own knowledge OR
Info relating to acquisition referred to it u/s.5(a) OR
Acquiring of control referred to in s.5(b) OR
Merger/amalgamation referred to in s.5(c)
S.20(1) Proviso: Commission shall not initiate any inquiry under
this sub-section after the expiry of 1 yr from the date on which
such combination has taken effect.
Enquiry On Combination-On Receiving Notice:
S.20(2): On receipt of notice u/s.6(2)-Inquire as to whether a
combination referred to in that notice/reference has caused or is
likely to cause an appreciable adverse effect on competition in
India. [Note: 1yr period mentioned in S.20(1) is inapplicable to
S.20(2)]
[CONFLICT of Statutory provisions:
S.20(2): Inquiry mandatory.
S.6(3) read with S.29(1): Commission can drop proceedings-if on
prima facie opinion-it concludes that competition in India will not
be adversely affected.]
Dr. KUMUDHA RATHNA

PROCEDURE FOR INVESTIGATION OF COMBINATIONS:


S.29(1): Show-cause for investigation: If Commission prima facie
opines that a combination is likely/causes ...India-it shall issue
notice to the parties to show-cause-as to why investigation in of
such combination should not be conducted-to respond within 30
days of receipt of notice.
S.29(1A): After receipt of response from parties:
Commission may call for a report from Director General (DG)-to be
submitted within 60 days (Commission-may extend time for a
further 60 days).
S.6(2): Inquiry into disclosures:
If any person/enterprise-gives notice under this section-
Commission shall examine such notice-form prima facie opinion
[as per s.29(1)] & proceed [as per s.30].
S.29(2): Publish information for public knowledge:
If Commission-prima facie opines that the combination is or
likely..appreciable adverse effect...India-shall (within 7 working
days from date of receipt of the response of the parties to the
combination OR report of DG u/s.29(1A) whichever is later-direct
the parties to-publish details of the combination (within 10
working days of such direction, in such manner as it thinks
appropriate)-Reason-for bringing the combination to the
knowledge/info of the public & persons affected or likely to be
affected by such combination.
S.29(3): Invite Objections:
The Commission may invite any person/member of the pubic
(affected or likely to be affected by the combinations)-within 15
working days from date on which the details of the combination
were published.
Dr. KUMUDHA RATHNA

S.29(4): Call for Additional Details:


The Commission may-within 15 working days from the expiry of
the period specified in S.29(3)-call for such additional/other info as
it deems fit-from the parties to the combination.
S.29(5): The additional info shall be furnished by the parties-within
15 days from the expiry of the period specified in s.29(4).
S.29(6): Proceed to deal with the case: After receipt of all info &
within 45 working days from expiry of the period specified in
s.29(5)-Commission shall proceed to deal with the case as per
s.31.
Order of Commission after Enquiry:
Commission may pass any of the following Orders:
S.31(1): Approve the combination.
S.31(2): Direct that the combination shall not take effect.
S.31(3): If Commission opines that the combination has/is likely to
have appreciable adverse effect on competition-BUT-that such
adverse effect can be eliminated by modification-it may propose
appropriate modification to the combination.
S.31(4): The parties (who accept the modification) shall carry it out
within the time specified by the Commission.
S.31(5): If the parties to the combination, who have accepted the
modification proposed- do not carry them out within time
specified by the Commission-shall be deemed to have an
appreciable adverse effect..& Commission shall deal with such
combination as per the provisions of the Act.
S.31(6): If the parties to the combination do not accept the
modifications proposed by the Commission-they may submit an
amendment to the modifications proposed by the Commission-to
Dr. KUMUDHA RATHNA

the Commission-within 30 working days of modification proposed


by the Commission.
S.31(7): If the Commission agrees with the amendment proposed
by the parties-it shall-by Order-approve the combination.
S.31(8): If the Commission doesnt accept the amendments
proposed by the parties-it shall I allow a further 30 working days-
within which time they shall accept the modifications proposed by
the Commission.
S.31(9): If the parties do not accept the modifications proposed by
the Commission (within period specified in sub.s.6/8) the
combination shall be deemed to have an appreciable adverse
effect on competition & be dealt with according to the provisions
of this Act.
S.31(10): Further Orders by Commission:
Where the Commission
has declared that the combination shall not take effect
[S.31(2)] OR
Combination deemed to be having appreciable adverse
effect on competition [S.31(9)]
Without prejudice to any penalty which may be imposed or any
other prosecution-Commission may Order as follows-
a) The acquisition referred to S.5(a) OR
b) The acquiring of control referred to in S.5(b) OR
c) The merger/amalgamation referred to in S.5(c)
Shall not be given effect to.
Also, the Commission may, if it thinks appropriate-frame a
scheme to implement its Order-under this section.
Dr. KUMUDHA RATHNA

S.31(11): Deemed Approval: If Commission doesnt-within 210


days from date of notice to Competition Commission-deemed to
have been approved by the Commission.
Expln: Exclusion in computing 210 days: The 30 days specified in
sub.s.6 & further 30 days specified in sub.s.8 shall be excluded.
S.31(12): If any extension of time is sought by the parties to the
combination-the period shall be computed after deducting the
extended period.
S.31 (13): Where the Commission has ordered a combination to be
void-any acquisition/merger/amalgamation-shall be dealt with by
authorities under any other Law for the time being in force as if
such acq/merger/amalgamation-had not taken place.
S.31 (14): The provisions of Chapter shall not affect-proceedings
initiated or which may be initiated under any other Law for the
time being in force.
S.32: Acts taking place outside India but having an effect on
competition in India:
The Commission shall, not withstanding that-
a) An ag referred to in S.3 has been entered into outside India OR
b) Any party to such ag is outside India OR
c) Any enterprise abusing the dominant position is outside India
OR
d) A combination has taken place outside India OR
e) Any party to combination is outside India OR
f) Any other matter/practice/action arising out of such ag or
dominant position or combination is outside India
Have power to inquire into such ag or abuse of dominant position
or combination-if such ag/dominant position/combination-has or
Dr. KUMUDHA RATHNA

is likely to have-an appreciable adverse effect on competition in


the relevant market in India.
S.33: empowers the Commission to issue interim Orders
restraining any party from carrying on such act until the conclusion
of such inquiry or until further Orders [even sans giving notice to
such party, where it deems it necessary].
S.35: Appearance before Commission:
A person/enterprise/DG may
Appear in person OR
Authorise 1 or more
o Chartered accountants
o Company secretaries
o Cost accountants
o Legal practitioners
o Any of his/its Officers
to present his/its case before the Commission.
S.36: Power of Commission to regulate its own procedure:
1) In discharging its functions-Commission shall be guided by-
principles of natural Justice-subject to
a. Provisions of this Act
b. Rules framed by Central Govt.
Commission shall have power to regulate its own procedure.
2) Commission-for the purpose of discharging its functions-has
vested in itself the same powers as that of a Civil Court under
C.P.C.-namely-
a. Summoning/enforcing attendance of any person
b. Examine him on oath
c. Require discovery & production of documents
d. Receive evidence on affidavit
Dr. KUMUDHA RATHNA

e. Issue commissions for examination of witnesses/docs


f. Requisition any pubic record/doc or copy thereof from any
office (subject to ss.123 & 124 of Indian Evidence Act,
1872).
3) Call upon such experts, from any discipline as it deems
necessary-to assist the Commission in the conduct of any
inquiry by it.
4) The Commission may direct any person-to produce/furnish-
before-DG/Secretary/any Officer authorised by it-
a. Such books/documents in custody/control of such person
b. Trade or any info (in relation to the trade carried on by
such person) as may be in his possession.
S.38: Rectification of Orders: The Commission may-suo moto or on
notice given by any party to an Order-rectify any mistake apparent
from the record.
Expln: The Commission shall not-in rectifying any mistake-amend a
substantive part of its Order.
S.39: Execution of Orders of Commission imposing penalty:
1) If a person on whom monetary penalty has been imposed by the
Commission-fails to pay it-the Commission may proceed against
the person to recover the penalty in such manner as may be
specified by the regulations.
2) If the Commission opines that recovery of penalty is to be as per
provisions of the Income-Tax Act, 1961-it may make a reference
to this effect to the concerned IT authority-for recovery.
3) Where a reference has been made by the Commission-under
sub-section.2-the person on whom the penalty has been
imposed shall be deemed to be an assessee in default under IT
Act.
Dr. KUMUDHA RATHNA

DUTIES OF THE DIRECTOR GENERAL:


S.41: DG shall when directed by the Commission-assist the
Commission in-investigating into any contravention of the
provisions of this Act or any rules/regulations made there under.
S.42: Contravention of the Orders of the Commission:
The Commission may cause an inquiry to be made into
compliance of its Orders/directions.
If any person (sans sufficient cause) fails to comply with the
Orders...he shall be punishable with-fine (max-Rs.1 lakh for each
day of non-compliance subject to a max of Rs.10 crores)-as
determined by the Commission.
If any person doesnt comply with Orders/directions or fails to
pay the above said fine-Imprisonment for a max of 3 yrs &/or fine
(max-Rs.25 crores)-as Chief Metropolitan Magistrate, Delhi,
deems fit.
But, Chief Metro Magistrate, Delhi-shall take cognizance of any
offence under this section-ONLY on a complaint filed by the
Commission.
S.42A: (inserted by 2007 amendment Act): Compensation in case of
contravention of Orders of Commission:
Any person-may make an application to the Appellate Tribunal for
an Order for the recovery of-compensation for any loss/damage-
suffered as a result of-
An enterprise violating directions issued by the Commission; or
Contravening (sans reasons) any decision/Order of Commission
or
Dr. KUMUDHA RATHNA

Contravening (sans reasons) any conditions/restrictions subject


to which any approval/sanction/direction/exemption in relation to
any matter has been granted under this Act or
Delay in carrying out such Orders/Directions of the Commission.
S.43: Penalty for failure to comply with directions of Commission
and Director General:
If any person fails to comply (sans reasonable cause)-with a
Direction given by
The Commission u/s.36 (2 & 4) or
The DG while exercising powers referred to in s.41 (2)
Such person shall be punishable with fine (max-Rs.1 lakh per day
of continuing default with a total max of Rs.1 crore)-as determined
by the Commission.
S.43A: Power to impose penalty for non-furnishing of info on
combinations:
If any person/enterprise-fails to give notice to the Commission
[u/s.6 (2)]-Commission shall impose penalty-may extend to 1% of
the total turnover or the assets (whichever is higher) of such
combination.
S.44: Penalty for making false statement/omission to furnish
material information:
If any party to a combination-
Makes a statement which is false-of a material particular-
knowingly OR
Omits to state any material particular-knowing it to be
material
Such person shall be liable to a penalty-Rs.50 lakhs (minimum) &
max of Rs.1 crore (as determined by the Commission.
Dr. KUMUDHA RATHNA

S.45: Penalty for offences in relation to furnishing of info:


[Without prejudice to S.44] If any person-furnishes or reqd to
furnish any info/particulars/docs-
Makes any statement/furnishes any doc-which he knows or
has reason to believe to be false (relating to any material
particular) OR
Omits to state any material fact-knowing it to be material OR
Wilfully alters/suppresses/destroys-any doc-which is reqd to
be furnished
Punishable with fine (max) of Rs.1 crore-by the Commission.
S.46: Power of Commission to impose lesser punishment:
If the Commission is satisfied that-any Producer/seller/distributor
etc-included in a cartel (which is alleged to have violated S.3)-has
made a full & true disclosure-in respect of the alleged violations-
may impose of such person-a lesser penalty-as it deems fit.
S.47: Crediting sums realised by way of penalties-to-Consolidated
Fund of India:
All sums realised by way of penalties under this Act shall be
credited to this fund.
S.49: Competition Advocacy:
The Central Govt/St. Govt. may-in formulating a policy on
competition (or any other matter)-make a reference to the
Commission-for its opinion-on possible effect of such policy on
competition-AND-on receipt of such reference-the Commission
shall-within 60 days of making the reference-give its opinion-to the
Central/St. Govt.
The opinion of the Commission-shall not be binding upon the Govt.
Dr. KUMUDHA RATHNA

The Commission shall take suitable measures for the promotion of


competition advocacy-creating awareness & imparting training
about competition issues.