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Competition Act, 2002

Competition- What?
A situation in a market, in which sellers independently strive for buyers patronage to achieve business objectives such as profits, sales or market share. It is the foundation of an efficiently working market system.

Competition- Why?
The ultimate objective of competition is to secure the interest of the Consumer - it empowers the consumer, best guarantee for consumer protection. It is a means of reducing cost and improving quality. It also implies an open market where shortages are rapidly eliminated through the best allocation of resources. It accelerates growth and development; preserves economic and political democracy.

Benefits of Competition
Companies : Efficiency, cost-saving operations, better utilization of resources, etc.

The Consumer : Wider choice of goods at competitive prices


The Government : Generates revenue BUT

all these benefits are lost if Competition is UNFAIR or NON-EXISTANT


Choice of CARS in the olden days Airlines : INDIAN AIRLINES : JET : SAHARA Indian Railways : The monopoly continues.

It is

not

necessary

that

there

are

large number

of

producers/suppliers to have competition conditions.


A single producer can exist and provide a competitive atmosphere provided entry of new firms is easy and not costly.

Entry barriers can be due to the market position of incumbent firms, legal barriers or strategic barriers Incumbent firms may use their power as first Movers to block entry. Legal barriers include licensing and other Government regulations Strategic barriers are generally erected by incumbent firms in the form of artificial and sudden price reduction with a view to thwarting new entry. Monopoly (market) power tends to lead to inefficient allocation of sources and discourages innovation or introduction of better technology.

Why a competition policy ?


Competition policy is defined as those Government measures that affect the behaviour of enterprises and structure of the industry. It is to promote efficiency and maximise welfare. (Sum of consumers surplus & producers surplus and taxes collected by the Government).

There are two elements of competition policy. First, a set of competition enhancing policies, such as liberalised trade policy, relaxed FDI policy, de-regulation, etc. Second, competition law to prevent anti-competitive practices with minimal government intervention. Competition law also prevents artificial entry barriers, facilitates market access and compliments other competition promoting activities.

Competition Act 2002 Background


Government constituted a committee in 1999 to examine MRTP Act, 1969 for shifting the focus of the law from curbing monopolies to promoting competition and to suggest a modern competition law in line with international developments to suit Indian conditions. As a sequel to the Report of the Committee, the Competition Act, 2002 was enacted and notified in January, 2003.

Establishment of Competition Commission of India


Competition Act 2002 provides for establishment of a Commission to prevent practices having adverse effect on competition etc. Duties of the Commission To eliminate practices having adverse effect on competition To promote and sustain competition To protect interests of consumers, etc.

Introduction- MRTP Act, 1969


The Monopolistic and Restrictive Trade Practices Act, 1969, was enacted To ensure that the operation of the economic system does not result in the concentration of economic power in hands of few, To provide for the control of monopolies, and To prohibit monopolistic and restrictive trade practices. The MRTP Act extends to the whole of India except Jammu and Kashmir.

Restrictive Trade Practice


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

Unfair Trade Practice


An unfair trade practice means a trade practice, which, for the purpose of promoting any sale, use or supply of any goods or services, adopts unfair method, or unfair or deceptive practice. Unfair practices may be categorised as under: False representation False offer of bargain price Free gifts offer and prize schemes Non-compliance of prescribed standards Hoarding, destruction, etc.

Monopolistic Trade Practices


A monopolistic trade practice is one, which has or is likely to have the effect of: i. maintaining the prices of goods or charges for the services at an unreasonable level by limiting, reducing or otherwise controlling the production, supply or distribution of goods or services; ii. unreasonably preventing or lessening competition in the production, supply or distribution of any goods or services whether or not by adopting unfair method or fair or deceptive practices; iii. limiting technical development or capital investment to the common detriment; iv. deteriorating the quality of any goods produced, supplied or distribute; and v. increasing unreasonably a. the cost of production of any good; or b. charges for the provision, or maintenance, of any services; or c. the prices for sale or resale of goods; or d. the profits derived from the production, supply or distribution of any goods or services.

Competition Act 2002


The Act will replace the current Monopolies and Restrictive Trade Practices Act 1969 ("MRTP Act"). Whilst the MRTP Act was designed to govern restrictive trade practices in the context of a closed and centrally planned economy, the Competition Act draws upon concepts of competition law found in more liberalised economies such as the US and EU. It extends to whole of India

Objectives of Competition Act


To prevent practices having adverse effect on competition To promote and sustain competition in market To protect the interest of consumers To ensure freedom of trade carried on by other participants in markets in India

According to the Competition Act, for any multinational companies ("MNCs") operating in India,
the Competition Commission of India ("CCI"), will be empowered to scrutinize all mergers, acquisitions and joint venture activity in India where the asset value of the parties involved is more than Rs. 1,000 crore within India or $500 million globally, OR turnover is greater than Rs. 3,000 crore within India or $1,500 million globally.

The Competition Act has four main components:


Prohibition of Anti-Competitive Agreements; Prevention of Abuse of Dominance; Regulation of Mergers and Acquisitions; Establishment of the 10 member CCI.

Prohibition of Anti-Competitive Agreements


Prohibits and voids any agreement which causes or is likely to cause an appreciable adverse effect on competition in India.

Adverse effect on competition means Any agreement entered into that Contains presumption against agreements which indirectly or directly determine purchase or sale prices; control production, supply, markets, technical development, investment or provision of services; Shares the market or sources of production either by geographical allocation or types of goods or services or market shares; or which either directly or indirectly result in bid rigging or collusive bidding.

Bid rigging: any activity which has the effect of eliminating or reducing competition forbids or adversely affecting or manipulating the process for bidding. Cartel: by agreement amongst themselves , limit , control or attempt to control the production, distribution, sale or price of, or trade in goods or provision of services.

An agreement which causes or is likely to cause an appreciable adverse effect on competition includes:
Tie-in arrangement: requiring the purchaser of the goods , as a condition of such purchase, to purchase some other goods Exclusive supply agreement: restricting the purchaser from acquiring any goods other than those of the seller Exclusive distribution agreement: limit or allocate any market or area Refusal to deal: restrict to whom goods are sold or bought Resale price maintenance: resale prices stipulated by the seller

Prohibition of Abuse of Dominant Position


Prohibits abuse of dominant position by any enterprise. Dominant Position means a position of strength, enjoyed by an enterprises, in the relevant market, whether in India or outside India which enables it to
Operate independently of competitive forces prevailing in the relevant market Affect its competitors or consumers or the relevant market in its favor

Predatory Price means


The sale of goods or provision of service, at a price which is below the cost
(as may be determined by regulations of production of goods or provision of services) with a view to reduce competition or eliminate the competitors.

An abuse of dominant position consist of:


directly or indirectly imposing unfair or discriminatory
conditions in the purchase or sale of goods or services, or setting prices in the purchase or sale (including predatory pricing) of goods or services;

limiting or restricting
the production of goods or provision of services or market therefor; or limiting technical or scientific development relating to goods or services to the prejudice of consumers;

indulging in practice or practices resulting in the denial of market access; making conclusion of contracts subject to acceptance by other parties of supplementary obligations which have no connection with the subject of such contracts; utilisation of a dominant position in one market to enter into, or protect, another market.

Regulation of Combinations
Prohibits and voids any "combination" which causes or is likely to cause an appreciable adverse effect on competition within the relevant market in India. Combination means
The acquisition of one or more enterprises by one or more persons or Merger or amalgamation of enterprises, If certain conditions are fulfilled
Acquisition of control, shares, voting rights or assets Acquisition of control over production, distribution or trading Merger or Amalgamation

The following thresholds apply for determining whether a merger or acquisition becomes a "combination" subject to scrutiny:
enterprises with operations in India: Rs. 1,000 crore asset value or Rs. 3,000 crore turnover; enterprises with global operations: $500 million asset value or $1,500 million turnover; groups of companies with operations in India: Rs. 4,000 crore or Rs. 12,000 crore turnover; groups of companies with global operations: $2 billion asset value or $6 billion turnover.

Regulation of Combinations
No person or 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 and such a combination shall be void. Exemption: Any person or enterprise , who proposes to enter into combination may give notice to the Competition Commission of India and the fee which may be determined by regulations, disclosing the details of the proposed combination within 7 days of

approval of the proposal relating to merger or amalgamation by Board of Directors of enterprises execution of any agreement or other document for acquisition

Penalty of making false statements or omission to furnish material information If any person, being a party to a combination Makes a statement which is false in any material particular, or knowing it to be false, or Omits to state any material particular knowing to be material He shall be liable to a penalty which shall not be less than Rs. 50,00,000 but which may extend to Rs. 1,00,00,000 as may be determined by the commission

Competition Commission of India


The CCI has replaced the MRTP Commission. The commission consist of a Chair person and not less than 2 and not more than 10 other members to be to be appointed by the Central Government. CCI is authorized to inquire into whether a "combination" has caused or is likely to cause an appreciable adverse effect on competition in India. Any such inquiry must be initiated within one year of the combination taking effect. Duties of the Commission

To eliminate practices having adverse effect on competition To promote and sustain competition To protect interests of consumers Ensure freedom of trade carried by other participants, in markets in India

References
http://www.cci.gov.in/ http://economictimes.indiatimes.com/