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Citation:
Preeti Mehta, Competition Law in India, 6 Int'l J.
Franchising L. 25 (2008)

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COMPETITION LAW IN INDIA
By Preeti Mehta, Messrs Kanga & Co, Mumbai, India
This article provides an overview of antitrust regulation in India following recent amendments to
the Competition Act 2002 and, in particular, analyses the application of provisions regarding
restrictive trade practices to franchising agreements.
Introduction
The Preamble of the Indian Constitution contains the
term "Socialist", which refers to an economic system
that does not result in concentration of economic power
and means of production or rendering of services in the
hands of few to common or public detriment.
The Monopolies and Restrictive Trade Practices Act,
(hereinafter 'MRTP Act'), 1969, which came into force
in 1970, was enacted to promote a socialist objective
and to prohibit any kind of monopolistic or restrictive
trade practices in the Indian market. The MRTP Act
underwent several amendments right until 1991.
While India was still in the MRTP stage, the global
economy was rapidly changing promoting further
liberalization and globalization to permit foreign
companies to promote their products and services in
domestic markets worldwide. This change was also
reflected in the World Trade Organization, as it adopted
policies of globalization and liberalization.
The flow of foreign direct investment in India ensured
a growth in its market ethos in tune with that of the
world. This influence was immediately reflected in an
amendment to the MRTP Act, which retained only the
.cease and desist' powers vested in the MRTP
Commission, while doing away with the rules
regulating concentration of economic power, i.e.
Sections 20 to 26 in chapter III of the MRTP Act.
The global trade relations of any country are reflected
by its conformity with trade policies generally
prevalent in the World economy. India therefore had to
change its stance and reflect these changes in
legislation. The Indian Government saw the success of
the competition law in the United Kingdom and the
antitrust laws in the United States of America. The
1991 amendment to the MRTP Act reflected the
intention that the legislation should favour healthy
competition and provide sufficient access to foreign
products and services in the Indian market. The EC
COMPETITION LAW IN INDIA
regulatory framework concerning restrictive practices
and dominant undertakings were looked at for
guidance.
The MRTP Act was repealed with the enactment of the
Competition Act, 2002 ("the Act"). However, the
repealing provision contains a clause allowing the
MRTP Commission, constituted under Section 5 of the
MRTP Act, to continue functioning for a period of two
years from the date of notification under Section 66 of
the Competition Act.
The Act was enacted with a view to:
(i) regulate mergers;
(ii) prevent abuse of dominant position;
(iii) prohibit agreements causing or likely to
cause an appreciably adverse effect on
competition;
(iv) promote and sustain healthy competition in
the market;
(v) protect the interests of the consumer; and
(vi) ensure freedom of trade for all market
participants in markets in India.
The Act is pari materia with the provisions of the EC
Treaty relating to restrictive trade practices and abuse
of dominant position. The obvious question as to
whether the Indian markets will turn out to be as
'consumer-friendly' as the European market or as
'competition-friendly' as the American market, can
only be assessed with the passage of time.
An important shift in the Act, as compared to the
earlier MRTP Act which considered problems of
monopoly and anti-competitive practices in a purely
legal light, is that it considers problems in light of
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COMPETITION LAW IN INDIA
economic perspectives and with a view to economic
objectives.
The MRTP Commission established by the MRTP Act
is a quasi-judicial authority, while the Competition
Commission established under the Act is more in the
nature of a regulatory authority, well versed in
economic aspects and in the impact of issues on fair
competition and consumer interests.
The Competition Act's main thrust is on:
(a) anti-competitive agreements;
(b) abuse of dominant position; and
(c) regulation of mergers.
Anti-competitive agreements
Section 3 of the Act deals with the matter of anti-
competitive agreements. The purpose and objective of
these provisions is to prevent cartels and other
agreements between enterprises, associations and
persons etc. engaged in an identical or similar trade of
providing goods or services which
1. directly or indirectly determine purchase or sale
prices, limit or control production, supply, markets,
technical developments, investment, provision of
services; sharing markets or sources of production
or provision of services in various manner, which
are related to area of markets, types of goods or
services or quantum of customers etc.;
2. directly or indirectly result in bid rigging, collusive
bidding.
The provision carries an inherent presumption of such
practice having an appreciably adverse effect on
competition. Among various other provisions relating
to anti-competitive agreements are those relating to:
- tie-in arrangements;
exclusive supply agreement;
exclusive distribution agreement;
refusal to deal; and
resale price maintenance.
However, the provision shall not constitute a restraint
on legal rights and protections conferred under
intellectual property legislation' or the right of any
1the Copyright Act, 1957; the Patent Act, 1970; the Trade
Merchandise Marks Act, 1958 or the Trade Marks Act, 1999; the
Designs Act, 2000; the Semi Conductor Integrated Circuits
Layout-Design Act, 2000
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person to export goods from India under an exclusivity
agreement for the purposes of export.
The terms 'cartel', 'enterprises', 'goods', 'consumer',
'person', 'price', 'service', 'trade' etc. are defined in
Section 2 of the Act. Further, for the purposes of the
anti competitive agreements definitions are provided in
respect of the terms 'tie-in arrangement', 'exclusive
supply agreement', 'exclusive distribution agreement',
etc.
Abuse of dominant position
Under Section 4 a dominant position is said to mean a
position of strength enjoyed by an enterprise in
relevant markets in India that enable it to operate
independently of competitive forces prevailing in the
relevant markets, or to affect is competitors or
consumers or the relevant markets in its favour. The
purpose of this Section is to prohibit any enterprise or
group from abusing its dominant position in a direct or
indirect manner, such as unfair or discretionary
conditions in the purchase or sale of goods or services,
or pricing (including predatory pricing); limiting or
restricting the production of goods or the provision of
services or technical or scientific development in
respect thereof to the prejudice of consumers; denial of
market access in any manner arising out of practice or
practices of imposing additional obligations, which
have no connection with the main contract; or using a
dominant position in a market to enter into or protect
another market. A feature of the Act, particularly
relating to dominant position, is the power of the
Competition Commission under Section 28 to order
division of an enterprise to ensure that such enterprise
does not abuse its dominant position.
Regulation of combination
Section 5 of the Act deals with combination and
presumes that the acquisition of an enterprise or
enterprises by a person or persons, or the merger or
amalgamation of enterprises, shall be construed as a
combination of such enterprises and persons or
enterprises:
(i) if the value of the voting rights, control,
shares or assets, or the combined turnover,
exceeds the prescribed thresholds;
(ii) if the group, to which the enterprise whose
control, shares, assets or voting rights have
been acquired or are being acquired, would
belong after acquisition, jointly has or would
jointly have assets in India or outside India
beyond the prescribed limits;

(iii) in the case of acquisition of control of
another enterprise engaged in similar or
identical or substitutable goods or services
directly or indirectly, if the enterprises in
respect of which control has been acquired
or group in respect of which enterprise in
respect of which control has been acquired
or being acquired jointly have or would
have, in India or outside India of value
exceeding those prescribed.
(iv) in the case of a merger or amalgamation in
which the enterprise remaining after the
merger or the enterprise created as a result of
the amalgamation, has or would have assets
in India or outside India exceeding the
prescribed values.
The Explanation under the Section defines the terms
"control" and "group" and also sets out how the value
of assets is to be determined. The terms "acquisition"
and "turnover" are defined in Section 2.
The object behind a detailed reference to combinations
under the Act and the presumption of the existence of a
combination is aimed at preventing appreciably
adverse effects on competition within the relevant
market in India. There is also a presumption that any
such combination shall be treated as void.
Section 6 mandates that notice should be given and
details of the proposed combination should be
disclosed to the Commission within 30 days of certain
events. A prohibition exists against any combination
coming into effect until 210 days from the date of such
notice being given or until the Commission has passed
an order Under Section 31 of the Act. The apparent
objective behind this provision again is to pre-empt or
prevent any combination having an appreciably
adverse effect on competition. It must be kept in mind
that the provisions of Section 6 do not affect public
finance institutions or banks, institutional investors and
venture capital funds pursuant to a covenant under a
Loan Agreement or Investment Agreement.
Furthermore, public financial institutions, banks,
foreign institutional investors or venture capital funds
are required to file details of the acquisition, including
details of control etc., with the Commission within 7
days from the date of acquisition.
As mentioned earlier, the role of the Competition
Commission is that of a regulatory body with a duty to
eliminate practices having an adverse effect on
competition, to promote and sustain competition, to
protect the interests of the consumer and preserve the
COMPETITION LAW IN INDIA
freedom of trade carried out by market participants in
India. Various powers have been vested in the
Competition Commission. The Competition
Commission seems to have wide powers of regulation,
superintendence, enquiries and remedies ensuring each
person adequate opportunity to exhaustively avail
himself of the due process of law including the right to
appeal.
Competition law and franchising - restrictive trade
practices
The MRTP Act required registration of agreements
considered to involve restrictive trade practices,
including agreements which may be relevant in the
context of franchising:
1. an agreement which restricts, or is likely to restrict,
by any method the persons or classes of persons
from whom the goods are bought (i.e. exclusive
supply);
2. an 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 (i.e. exclusivity);
3. an agreement not to employ or restrict the
employment of any method, machinery or process
in the manufacture of goods (i.e. using a specific
method);
4. an agreement to sell goods on condition that the
prices to be charged on resale by the purchaser
shall be the price stipulated by the seller, unless it
is clearly stated that the prices lower than those
prices may be charged (i.e. resale price fixing).
Parties to the agreement were under an obligation to
register the agreement. Failure to register such
agreements without reasonable cause, could attract
penalties of imprisonment of up to three years and/or
fines.
Irrespective of the fact whether the agreement relating
to restrictive trade practices had been registered or not,
the MRTP Commission had the right to investigate any
restrictive trade practice, if it was of the opinion that
the same was prejudicial to the public interest, and to
pass a cease and desist order.
There is no provision in the Competition Act which
requires registration of agreements which will fall
within any of the above categories. However, Section 3
provides that if the agreement falls under the
prescribed categories and will have an appreciably
adverse effect on competition in India, then the
agreement will be regarded as void. However, a
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COMPETITION LAW IN INDIA
determination on whether or not an agreement would
be regarded as anti-competitive would depend on the
tests laid down by the judicial decisions under the
MRTP regime and it is therefore worthwhile keeping in
mind the ratio decidendi in these cases as they would
in all probability be relied upon even in the context of
the Competition Act.
Exclusive supply, exclusivity & using specific
methods
While deciding on the issue of restraint of trade in the
landmark case of Gujarat Bottling Company Limited
Vs. Coca Cola Companyz , the Hon'ble Supreme Court
of India held that:
"There is a growing trend to regulate distribution of
goods and services through franchise agreements
providing for grant of franchise by the franchisor on
certain terms and conditions to the franchisee. Such
agreements often incorporate a condition that the
franchisee shall not deal with competing goods. Such a
condition restricting the right of the franchisee to deal
with competing goods is for facilitating the distribution
of the goods of the franchisor and it cannot be regarded
as in restraint of trade."
Therefore, it is well settled that, though a general or an
absolute or an omnibus restriction would be void, at the
same time a partial restriction, if reasonable, may be
considered enforceable. Therefore, covenants in a
franchise agreement restraining the franchisee from
carrying out competing business or limiting it to a
given territory would normally be treated as reasonable
restraints and would be enforceable against a
franchisee.
In line with the Hon'ble Supreme Court's judgement in
the Coca Cola case, the MRTP Commission has in
many cases allowed reasonable restrictions in franchise
relationships. In the case of Mohan Meakins Limited
and others 3, Mohan Meakins had entered into franchise
agreements with bottlers and, inter alia, required the
bottlers to purchase raw materials from it and restricted
them from manufacturing any other products at their
plant. When those provisions were challenged as
restrictive practices, the MRTP Commission held that
reasonable restrictions on the franchisees to protect the
quality of the products would be in the public interest
and are justified. The Commission therefore allowed
most of the restrictions in the agreement to continue,
with some modifications to the effect that instead of
total prohibition on manufacture of other products at
the plant, the franchisee was restricted from
2 AIR (1995) Supreme Court 2372
3 RTP Enquiry No. 65 of 1984
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I-l terh,_t Publishing Ltd.
manufacturing any other products, which could be
confused with Mohan Meakin's products.
Resale price fixing
Under the terms of Section 39 of the MRTP Act,
establishment of a minimum resale price through any
contract for sale of goods is illegal. In many inquiries,
the MRTP Commission required modifications to the
effect that the prices stated in the agreement and/or as
notified in price lists issued are maximum
recommended prices for resale, leaving the option to
the dealer to charge less. Even under the Competition
Act regime, it would be advisable to incorporate an
appropriate provision in the franchise agreement to
avoid such issues later.
Restriction on maintenance of resale prices is also
applicable to articles protected by a patent or trade
mark. However, an exception to this rule under the
MRTP Act is that a licensor of patent/trademark can
impose a condition on the licensee for maintaining
retail prices. Hence, where the franchisee is also a
licensee of a patent or trade mark, it would be possible
to prescribe the resale price.
Even in the Competition Act, an exemption is provided
in Section 3 (Anti-competition agreements) that
nothing contained in Section 3 will restrict the right of
any person to impose reasonable restrictions, as may be
necessary for protecting any of his rights which have
been or may be conferred upon him under the
Copyright Act, Trade Marks Act and other intellectual
property related laws in India. Since in case of the
franchise agreement there is a licence to use the
intellectual property of the franchisor, the restrictions
imposed on the franchisee to protect the rights of the
franchisee would not be regarded as anti-competitive.
Preeti Mehta
Preeti Mehta is a Partner at Messrs Kanga and
Company, a Mumbai law firm and practises in matters
relating to foreign collaborations, private equity,
venture capital, franchising, corporate law, capital
markets and banking. Ms. Mehta took an intensive
franchising course at Middlesex University, London
and advised many international franchisors on setting
up franchises in India. She has presented papers at
several international seminars and authored articles on
various legal subjects. She is a member of the Law
Committee of the Bombay Chamber of Commerce and
Industry and of the Executive Council of the Franchise
Association of India (FAI). Ms. Mehta chairs the FAI's
Legal Committee.