MRTP ACT METAMORPHOSES INTO COMPETITION ACT

Dr. S CHAKRAVARTHY* PREFATORY Since attaining Independence in 1947, India, for the better part of half a century thereafter, adopted and followed policies comprising what are known as Command and Control! laws, rules, regulations and e"ecuti#e orders$ %he competition law of India, namely, the &onopolies and 'estricti#e %rade (ractices )ct, 19*9 +&'%( )ct, for brief, was one such$ It was in 1991 that widespread economic reforms were undertaken and conse-uently the march from Command and Control! economy to an economy based more on free market principles commenced its stride$ )s is true of many countries, economic liberalisation has taken root in India and the need for an effecti#e competition regime has also been recognised$ +.or a history of e#olution of competition policy in se#eral countries, see /wing, 0112,$ In the conte"t of the new economic policy paradigm, India has chosen to enact a new competition law called the Competition )ct, 0110 +)ct, for brief,$ %he &'%( )ct has metamorphosed into the new law, Competition )ct, 0110$ %he new law is designed to repeal the e"tant &'%( )ct$ )s of now, only a few pro#isions of the new law ha#e been brought into force and the process of constituting the regulatory authority, namely, the Competition Commission of India under the new )ct, is on$ %he remaining pro#isions of the new law will be brought into force in a phased manner$ .or the present, the outgoing law, &'%( )ct, 19*9 and the new law, Competition )ct, 0110 are concurrently in force, though as mentioned abo#e, only some pro#isions of the new law ha#e been brought into force$ This paper, therefore, a the $eta$orphosis. TRI((ER CA)SE Competition 3aw for India was triggered by )rticles 24 and 29 of the Constitution of India$ %hese )rticles are a part of the 5irecti#e (rinciples of State (olicy$ (egging on the 5irecti#e (rinciples, the first Indian competition law was enacted in 19*9 and was christened the MONOPO*IES AND RESTRICTIVE TRADE PRACTICES ACT, +,-, +&'%( )ct,$ )rticles 24 and 29 of the Constitution of India mandate, inter alia, that the State shall stri#e to promote the welfare of the people by securing and protecting as effecti#ely, as it may, a social order in which 6ustice 7 social, economic and political 7 shall inform all the institutions of the national life, and the State shall, in particular, direct its policy towards securing ........................................................................... 8 5r$S$Chakra#arthy is a ci#il ser#ant by profession and a &ember of the Indian 9ar$ :e was &ember,
&onopolies and 'estricti#e %rade (ractices Commission and &ember, :igh 3e#el Committee on Competition (olicy and 3aw, 5ept$ of Company )ffairs, ;o#t$ of India and also on the Committee to draft a new Competition 3aw for India$ %ill recently, he was )d#isor<Consultant to ;o#t of India on Competition (olicy and 3aw$ %he #iews e"pressed are his own and not those of the Commission, Committee or the ;o#t$ :e is presently Consultant on Competition (olicy and 3aw$ Contact /mail address= chakra#arthy>hub$nic$in= chakra#arthy24>hotmail$com$

resses !oth the e"a#t$e"ts a" a%so o&t%i"es the %o'i# !ehi"

1$ that the ownership and control of material resources of the community are so distributed as best to subser#e the common good? and 0$ that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment$ In line with the )ntitrust legislation being an integral part of the economic life in many countries, India@s outgoing law, namely, the &'%( )ct is regarded as the competition law of India, because it defines a restricti#e trade practice to mean a trade practice, which has, or may ha#e the effect of pre#enting, distorting or restricting competition in any manner$ 9ut the &'%( )ct, in comparison with competition laws of many countries, is inade-uate for fostering competition in the market and trade and for reducing, if not eliminating, anti competiti#e practices in the country@s domestic and international trade$ %he &'%( )ct drew hea#ily upon the laws embodied in the Sherman )ct and the Clayton )ct of the Anited States of )merica, the &onopolies and 'estricti#e %rade (ractices +In-uiry and Control, )ct, 1944, the 'esale (rices )ct, 19*4 and the 'estricti#e %rade (ractices )ct, 19*4 of the Anited Bingdom and also those enacted in Capan, Canada and ;ermany$ %he A$S$ .ederal %rade Commission )ct, 1914 as amended in 1924 and the Combines In#estigation )ct, 1911 of Canada also influenced the drafting of the &'%( )ct$ (remises on which the &'%( )ct rests are unrestrained interaction of competiti#e forces, ma"imum material progress through rational allocation of economic resources, a#ailability of goods and ser#ices of -uality at reasonable prices and finally a 6ust and fair deal to the consumers$ )n interesting feature of the statute is that it en#elops within its ambit, fields of production and distribution of both goods and ser#ices$ THR)ST AREAS %hree areas informed till 1991 +when the &'%( )ct was amended, the regulatory pro#isions of the &'%( )ct, namely, concentration of economic power, competition law and consumer protection$ ) criticism is often #oiced that the statute was designed to prohibit growth$ %his is fallacious and erroneous$ %he statute, till 1991 regulated growth but did not prohibit it$ /#en in its regulatory capacity, it controlled the growth only if it was detrimental to the common good$ In terms of competition law and consumer protection, the ob6ecti#e of the &'%( )ct is to curb &onopolistic, 'estricti#e and Anfair %rade (ractices which disturb competition in the trade and industry and which ad#ersely affect the consumer interest +&onopolistic, 'estricti#e and Anfair %rade (ractices are described later in this paper,$ ) parallel legislation known as the Consumer (rotection )ct, 194* has also come into being, which pre#ails essentially in the realm of Anfair %rade (ractices$ Dne could argue that the consumers need no special protection as they can be left to the market forces$ 9ut a perfectly competiti#e market is 6ust an utopia and the consumer so#ereignty a myth$ (roducts are of great #ariety, many of them are comple" and the consumer has imperfect product knowledge$ %he supplier often has a dominant position #is E #is the buyer who has little or no bargaining power in the market$ %here has been a growing realisation for not depending on the old doctrine of Ca#eat /mptor 7 let the buyer beware!$ %he consumer, therefore, needs and deser#es legal protection against certain trade practices, business methods and unscrupulous forces$

In many countries and in particular de#eloping countries like India, a large number of consumers are illiterate and ill informed and possess limited purchasing power in an en#ironment, where there is shortage of goods$ Fery often, one witnesses the spectacle of a large number of non essential, sub standard, adulterated, unsafe and less useful products being pushed through by unscrupulous traders by means of Anfair %rade (ractices and decepti#e methods$ Subtle deception, half truths and misleading omissions inundate the ad#ertisement media and instead of the consumer being pro#ided with correct, meaningful and useful information on the products, they often get e"posed to fictitious information which tends to their making wrong buying decisions$ %ransparent information is missing and needs to be a goal to be chased$ %he regulatory pro#isions in the &'%( )ct apply to almost e#ery area of business 7 production, distribution, pricing, in#estment, purchasing, packaging, ad#ertising, sales promotion, mergers, amalgamations and take o#er of undertakings +pro#isions relating to mergers, amalgamations and take o#ers were deleted in the &'%( )ct by the 1991 amendments to it,$ %hey seek to afford protection and support to consuming public by reducing if not eliminating from the market &onopolistic, 'estricti#e and Anfair %rade (ractices$ Dne of the main goals of the &'%( )ct is to encourage fair play and fair deal in the market besides promoting healthy competition$ Ander the &'%( )ct, a 'egulatory )uthority called the &'%( Commission +briefly, Commission, has been set up to deal with offences falling under the statute$ O/0ECTIVES %he principal ob6ecti#es sought to be achie#ed through the &'%( )ct are= i, ii, iii, i#, #, pre#ention of concentration of economic power to the common detriment? control of monopolies? prohibition of &onopolistic %rade (ractices +&%(,? prohibition of 'estricti#e %rade (ractices +'%(,? prohibition of Anfair %rade (ractices +A%(,$

AMENDMENTS IN +,,+ AND SHIFT IN EMPHASIS %he &'%( )ct, 19*9 was amended in 1991 as a part of the new economic reforms set in motion by the ;o#ernment of that day$ %he amendments reset the ob6ecti#es enshrined in the original statute of 19*9$ Dut of the fi#e ob6ecti#es aforesaid in the pre#ious paragraph, the first two ha#e been de emphasiGed, after the 1991 amendments to the &'%( )ct$ %he emphasis has not only shifted to the three last mentioned ob6ecti#es but they ha#e been re emphasised$ In the conte"t of the ob6ecti#e +ii, abo#e, to the e"tent monopolies tend to bring about &onopolistic %rade (ractices, the &'%( )ct continues to e"ercise sur#eillance which e"isted prior to the 1991 amendments$ %his is because a &onopolistic %rade (ractice is understood to be synonymous with anti competiti#e practice$ )nything, which distorts competition, can lead to a monopoly situation$ )nything, which is likely to pre#ent or distort competition, is regulated by the statute$ %ersely, the &'%( )ct is designed against different aspects of market imperfections$ .or instance, before the 1991 amendments to the &'%( )ct, a merger which increased the dominance of the combine or resulted in a large share in the market could be looked at in terms of the pro#isions thereof and the ob6ecti#es go#erning them$

&onopoly is a concept of power which manifests itself in one@s power to= i, ii, iii, i#, #, #i, control production, supply, etc control prices pre#ent, reduce or eliminate competition limit technical de#elopment retard capital in#estment impair the -uality of goods$

%he &'%( )ct, before the 1991 amendments sought to curb such power arising out of a monopoly$ (rior to the 1991 amendments, the &'%( )ct essentially was implemented in terms of regulating the growth of big siGe companies called the monopoly companies$ In other words, there were pre entry restrictions therein re-uiring undertakings and companies with assets of more than 's$111 crores +about AS H00 million, to seek appro#al of ;o#ernment for setting up new undertakings, for e"pansion of e"isting undertakings, etc$ &a6or amendments were effected to the &'%( )ct in 1991$ (ro#isions relating to concentration of economic power and pre entry restrictions with regard to prior appro#al of the Central ;o#ernment for establishing a new undertaking, e"panding an e"isting undertaking, amalgamations, mergers and take o#ers of undertakings were all deleted from the statute through the amendments$ %he causal thinking in support of the 1991 amendments is contained in the Statement of Db6ects and 'easons appended to the 1991 )mendment 9ill in the (arliament, e"tract in part of which, runs as follows= Iith the growing comple"ity of industrial structure and the need for achie#ing economies of scale for ensuring higher producti#ity and competiti#e ad#antage in the international market, the thrust of the industrial policy has shifted to controlling and regulating the monopolistic, restricti#e and unfair trade practices rather than making it necessary for certain undertakings to obtain prior appro#al of the Central ;o#ernment for e"pansion, establishment of new undertakings, merger, amalgamation, take o#er and appointment of 5irectors$ It has been the e"perience of the ;o#ernment that pre entry restriction under the &'%( )ct on the in#estment decision of the corporate sector has outli#ed its utility and has become a hindrance to the speedy implementation of industrial pro6ects$ 9y eliminating the re-uirement of time consuming procedures and prior appro#al of the ;o#ernment, it would be possible for all producti#e sections of the society to participate in efforts for ma"imisation of production$ JJJ$$ %he criteria for determining dominance, JJJJ is proposed to be determined only on the basis of market share of 0KL of the total goods produced, supplied, distributed or ser#ices rendered in India or substantial part thereof$! Iith the restructuring of the &'%( )ct through the 1991 amendments, the thrust thereof is on curbing &onopolistic, 'estricti#e and Anfair %rade (ractices with a #iew to preser#ing competition in the economy and safeguarding the interest of consumers by pro#iding them protection against false or misleading ad#ertisements and<or decepti#e trade practices$ SiGe as a factor, to discourage concentration of economic power, has been, in a manner of speaking, gi#en up$

DOCTRINE ()IDIN( THE ACT 9eha#ioural and reformist doctrines inform the &'%( )ct$ In terms of the beha#ioural doctrine, the conduct of the entities, undertakings and bodies which indulge in trade practices in such a manner as to be detrimental to public interest is e"amined with reference to whether the said practices constitute any &onopolistic, 'estricti#e or Anfair %rade (ractice$ In terms of the reformist doctrine, the pro#isions of the &'%( )ct pro#ide that if the &'%( Commission, on en-uiry comes to a conclusion that an errant undertaking has indulged either in 'estricti#e or Anfair %rade (ractice, it can direct such undertakings to discontinue or not to repeat the undesirable trade practice$ %he &'%( )ct also pro#ides for the acceptance of an assurance from an errant undertaking that it has taken steps to ensure that pre6udicial effect of trade practice no more e"ists$ %he #eneer of the &'%( )ct is essentially based on an ad#isory or reformist approach$ %here is no deterrence by punishment$ Iith this backdrop, some of the important pro#isions of the &'%( )ct are listed in the narrati#e that follows, wherein the dimensions relating to 'estricti#e %rade (ractices, Anfair %rade (ractices, &onopolistic %rade (ractices, ;oods and 5ominance are co#ered$ ) Restrictive Trade Practice (RTP) is generally one which has the effect of pre#enting, distorting or restricting competition$ In particular, a practice, which tends to obstruct the flow of capital or resources into the stream of production, is a '%($ 3ikewise, manipulation of prices, conditions of deli#ery or flow of supply in the market which may ha#e the effect of imposing on the consumer un6ustified costs or restrictions is regarded as 'estricti#e %rade (ractice$ Certain common types of 'estricti#e %rade (ractices enumerated in the &'%( )ct are= i, ii, iii, i#, #, #i, #ii, 'efusal to deal %ie up sales .ull line forcing /"clusi#e dealings (rice discrimination 'e sale price maintenance )rea restriction

)ll 'estricti#e %rade (ractices under the &'%( )ct are deemed legally to be pre6udicial to public interest$ %he onus is, therefore, on the entity, body or undertaking charged with the perpetration of the 'estricti#e %race (ractice to plead for gateways pro#ided in the &'%( )ct itself to a#oid being indicted$ If the gateways are satisfactory to the Commission and if it is further satisfied that the restriction is not unreasonable ha#ing regard to the balance between those circumstances and any detriment to the public interest or consumers likely to result from the operation of the restriction, the Commission may arri#e at the conclusion that the '%( is not pre6udicial to public interest and discharge the en-uiry against the charged party$ .urthermore, if a trade practice is e"pressly authorised by any law for the time being in force, the Commission is barred from passing any order against the charged party$ (rior to 1944, the &'%( )ct contained no pro#isions for protection of consumers against false or misleading ad#ertisements or other similar unfair trade practices and a need was felt to protect them from practices, resorted to by the trade and industry, to mislead or

dupe them +Sachar Committee, 1974,$ %o -uote the Sachar Committee= )d#ertisement and sales promotion ha#e become well established modes of modern business techni-ues$ %hat ad#ertisement and representation to the consumers should not become decepti#e has always been one of the points of conflicts between business and consumer!$ %he Sachar Committee therefore recommended that a separate Chapter should be added to the &'%( )ct defining #arious Anfair %rade (ractices so that the consumer, the manufacturer, the supplier, the trader and other persons in the market can con#eniently identify the practices, which are prohibited$ /ssentially Anfair %rade (ractices +A%(, falling under the following categories were introduced in 1944 in the &'%( )ct = +i,$ +ii,$ +iii,$ +i#, +#, &isleading ad#ertisement and false representation$ 9argain sale, bait and switch selling$ Dffering of gifts or priGes with the intention of not pro#iding them and conducting promotional contests$ (roduct safety standards$ :oarding or destruction of goods$

&aking false or misleading representation of facts disparaging the goods, ser#ices or trade of another person is also a prohibited trade practice under the Indian law$ %he &onopolistic %rade (ractice +&%(, came into the statute by an amendment to the )ct in 1944$ )n &%( is a trade practice which has or is likely to ha#e the effect of= i, maintaining the prices of goods or charges for the ser#ices at an unreasonable le#el by limiting, reducing or otherwise controlling the production, supply or distribution of goods or the supply of any ser#ices or in any other manner? unreasonably pre#enting or lessening competition in the supply or distribution of any goods or in the supply of any ser#ices? limiting technical de#elopment or capital in#estment to the detriment or allowing the -uality of any goods produced, supplied or any ser#ices rendered, in India, to deteriorate? increasing unreasonably= a, the cost of production of any goods? or b, charges for the pro#ision, or maintenance, of any ser#ices? increasing unreasonably= a, the prices at which goods are, or may be, sold or re sold, or the charges at which the ser#ices are, or may be, pro#ided? or b, the profits which are, or may be, deri#ed by the production, supply or distribution +including the sale or purchase of any goods, or in the pro#ision or maintenance of any goods or by the pro#ision of any ser#ices?

ii, iii,

i#,

#,

#i,

pre#enting or lessening competition in the production, supply or distribution of any goods or in the pro#ision or maintenance of any ser#ices by the adoption of unfair methods or unfair or decepti#e practices$

In the &'%( )ct, the basis of determining dominance is whether an undertaking has a share of 0KL or more in the production, supply distribution or control of goods or ser#ices$ ;oods include products manufactured, processed or mined in India, shares and stocks and goods imported into India$ (rior to the 1991 amendments to the &'%( )ct, dominance had rele#ance in that, a dominant undertaking could not e"pand or commence a new undertaking without the appro#al of the ;o#ernment under the said )ct$ )fter 1991, with the deletion of the pro#isions relating to dominant undertakings, the concept of dominance has lost its significance$ 5uring the year 1991, a notification was issued by the ;o#ernment that the &'%( )ct shall apply to public sector undertakings whether owned by the ;o#ernment or by ;o#ernment companies, statutory corporations, undertakings under the &anagement of #arious controllers appointed under any law, cooperati#e societies and financial institutions$ %hus, there is no distinction now between the public sector undertakings and pri#ate sector companies in the matter of &onopolistic, 'estricti#e and Anfair %rade (ractices$ Indian )irlines, Mationalised 9anks, Indian 'ailways, (ost and %elegraphs and %ele Communications Andertakings, :ousing and Arban 5e#elopment )uthorities are all accountable if they indulge in &%(, '%( or A%($ %here are of course a few entities like 5efence undertakings which are still outside the ambit of the &'%( )ct$ It may also be mentioned here that after the amendment to the definition of ser#ice,! it includes the business of builders and real estate operators$ %his has brought a large number of buildings acti#ity operators under the mischief of the &'%( )ct$ %he &'%( )ct is administered by the &'%( Commission, which is assisted by the 5irector ;eneral of In#estigation and 'egistration for carrying out in#estigations, for maintaining register of agreements and for undertaking carriage of proceedings during the en-uiry before the &'%( Commission$ %he powers of the Commission include the power #ested in a Ci#il Court and include further power= i, ii, iii, i#, #, #i, #ii, to direct an errant undertaking to discontinue a trade practice and not to repeat the same? to pass a cease and desist order? to grant temporary in6unction, restraining an errant undertaking from continuing an alleged trade practice? to award compensation for loss suffered or in6ury sustained on account of '%(, A%( or &%(? to direct parties to agreements containing restricti#e clauses to modify the same? to direct parties to issue correcti#e ad#ertisement? to recommend to the Central ;o#ernment, di#ision of undertakings or se#erance of inter connection between undertakings, if their working is pre6udicial to public interest or has led or is leading to &%( or '%($

%he &'%( Commission can be approached with a complaint on 'estricti#e or Anfair %rade (ractices by= a, an indi#idual consumer, b, a registered association of consumers, or c, a trade association$ %he Commission can be mo#ed by an application from the 5irector ;eneral of In#estigation and 'egistration +5;, or by a reference by the Central or State ;o#ernments$ %he law pro#ides for self initiated action on the part of the Commission, if it recei#es information from any source or on its own knowledge$ %he procedure followed by the Commission is that on receipt of a complaint, the matter is, in many cases referred to the 5; for in#estigation and report$ &ore often than not, the complainee is called upon to gi#e his<her comments on the complaints recei#ed$ /"perience shows that in a large number of cases, the mere letter of in#estigation or letter of en-uiry issued by the 5; or the Commission results in the complainee pro#iding the needed relief to the complainant$ %his has been noticed in cases relating to refunds in respect of bookings of scooters, repair or replacement of refrigerators, %F sets, replacement of defecti#e parts during the warranty period and the like$ Similarly, there ha#e been cases of successful inter#entions relating to bookings of flats and plots and disputes relating to property$ %he law pro#ides for a temporary in6unction against the continuance of alleged &onopolistic, 'estricti#e or Anfair %rade (ractices pending en-uiry by the Commission$ ) salutary pro#ision in the &'%( )ct is the power of the Commission to award compensation for loss or damage suffered by a consumer, trader, class of traders or ;o#ernment as a result of any &onopolistic< 'estricti#e<Anfair %rade (ractice indulged in by any undertaking or person$ It is logical and e-uitable to pro#ide that any person who is affected by any prohibited practice should ha#e a remedy to reco#er damages and compensation from the guilty party$ Concentration of economic power may result from merger, amalgamation or take o#er$ %he &'%( )ct does not prohibit mergers, amalgamations or take o#ers but seeks to ensure that the arrangements ser#e public interest$ 9efore the 1991 amendments, the &'%( )ct frowned upon e"pansion of giant undertakings so as not to permit them to ac-uire power to put a stranglehold both on the market as well as on consumers and further industrial e"pansion of the country$ )fter the 1991 amendments, the &'%( )ct has been restructured and pre entry restrictions with regard to prior appro#al of the ;o#ernment for amalgamation, merger or take o#er ha#e been remo#ed$ REFORMS OF +,,+ AND METAMORPHOSIS In this new millennium born about three years ago, the present decade bids fair to be one of significant changes$ %he changes are nothing but a continuum from the last decade or two, when changes in the political and economic fields had taken place on a tempestuous note$ (olitical metamorphoses, unthinkable till a few years ago, ha#e taken place alongside economic reforms at a breath taking pace$ .or nearly half a century till the early 1991@s, there was a political and economic di#ide in the world into two powerful blocks$ D#er the last ten years after the early 1991@s, the world is turning somewhat unipolar, with central planning yielding to transition to market economy$ )ll o#er the world, one of the dominant economic themes in the last decade and a half has been the process of globalisation and a progressi#e international economic integration of the world economy$ %he mo#ement is towards the widening of international flows of trade, finance and information in a single integrated global market$ ;lobalisation has the fundamental attributes of relying significantly on market forces, ensuring competition and

keeping market functioning efficiently$ &easures adopted by many countries are essentially designed to open competition in strategic sectors such as telecommunications, air lines, electricity generation and distribution etc$ Such measures are a part of a tripod architecture with the three #ertices, one may christen as 3iberalisation, (ri#atisation, and ;lobalisation +3(;,$ ) #eneer running common to the 3(; measures is the element of competition$ %he 3(; syndrome seeks to make competition a dri#ing force in the economic and commercial acti#ities of the world$ )s obser#ed by (rofessor Iolfgang Bartte, the Chairman of the ;erman .ederal Cartel Dffice, Competition is the engine of market economy! +-uoted in 9rusick, 1990,$ %he thinking of policy makers in many countries, particularly the de#eloping ones and the hitherto centrally planned economies, is towards factoring competition into the economic and market policies$ Some of the countries ha#e embarked on structural ad6ustment programmes in#ol#ing competition driven reforms and competition oriented policies$ India is undergoing the process of transition into a market economy through measures set by the broad frame work of 3(;$ Ihile planned economic de#elopment had been the strategy adopted by India, since 19K1@s, it is in the last more than a decade since 1991, that the strategy has undergone significant metamorphoses$ %he economic reforms since 1991 and the e#olution of the new strategy ha#e been well documented +9hagwati and 5esai, 1971, 9hagwati and Srini#asan, 197K and )hluwalia, 1991,$ In the pre 1991 reforms period, India@s planned strategy and economic de#elopment stressed the broad policy ob6ecti#es of +i, the de#elopment of an industrial base with a #iew to achie#ing self reliance and +ii, the promotion of social 6ustice$ %he specific policy measures towards these ob6ecti#es were across the board substitution of Indian goods and ser#ices for imports, controlling the pattern of in#estment and controlling the utilisation of foreign e"change$ %he thrust of the policy instruments were the industrial licensing that affected the pri#ate sector and creating of a large public sector$ %he entire e"ercise was, as described earlier, the Command and Control! economy$ %he Command and Control! triggered policies meant that ;o#ernment inter#ention per#aded almost all areas of economic acti#ity in the country$ .or instance, there was no #o"testa!%e $ar1et$ %his meant that there was neither an easy entry nor an easy e"it for enterprises$ ;o#ernment determined the plant siGes, location of the plants, prices in a number of important sectors, and allocation of scarce financial resources$ %heir further inter#entions were characterised by high tariff walls, restrictions on foreign in#estments and -uantitati#e restrictions$ It may thus be seen that free competition in the market was under se#ere fetters, mainly because of ;o#ernmental policies and strategies, specifically, +1, industrial policy, +0, trade and commercial policy, +2, foreign in#estment policy, and +4, financial sector policy$ In this paper, the reforms since 1991 are not listed for want of space and as they may not be directly rele#ant to the title of this paper$ Suffice it to say that the industrial policy, trade and commercial policy, foreign and in#estment policy and financial sector policy were all de regulated and liberalised to embrace the 3(; process$ .or instance, licensing has been abolished in all but si" industries$ &a6or industries including iron and steel, hea#y electrical e-uipment, aircraft, air transport, shipbuilding, telecommunication e-uipment and electric power are now open for pri#ate sector in#estments$ %he monopoly of the public sector industries was abolished in 1991 e"cept for those, where security and strategic concerns still dominated$ %he system of price preference for public sector has been discontinued$ 'eser#ation of certain goods for production in the small scale sector is gradually being

phased out$ %ariffs are being reduced in a phased manner$ )s a result of liberalisation of regulatory controls, rationalisation and mergers, there is more effecti#e competition in the banking sector$ %he &'%( )ct concei#ed and legislated more than 21 years ago, was a conse-uence of Command and Control! policy approach of the ;o#ernment$ %he so call &'%( firms with assets more than 's$ 111 crores +about AS H 00 million, were prohibited from entering and e"panding in any sector e"cept those listed in )ppendi" I of the Industrial +5e#elopment and 'egulation, )ct, 19K1$ /#en, in respect of such listed sectors, the &'%( firms were re-uired to obtain &'%( clearances in addition to the usual industrial licenses$ In other words, the &'%( firms, generally considered big in siGe, were allowed to grow only under ;o#ernment super#ision$ SiGe, therefore, was a pe6orati#e factor in the thinking of the ;o#ernment, the premise being big becoming bigger is ugly!$ It is after 1991 reforms that the said premise big becoming bigger is ugly! yielded to a metamorphosed approach, namely, big becoming bigger may not be handsome but certainly is not ugly!$ In other words, siGe is not a pe6orati#e factor$ E2PERIENCE
IN THE *AST THREE DECADES

5uring the administration of the &'%( )ct o#er three decades since its inception in 19*9, many difficulties were encountered, particularly in regard to interpretations of e"pressions and pro#isions therein$ %here has been a large number of binding rulings of the Supreme Court of India and also 9ench decisions of the &'%( Commission$ %hese decisions ha#e interpreted the #arious pro#isions of the &'%( )ct from time to time and ha#e constituted precedents for the future$ %hus, where the wording of the e"isting law has been considered inade-uate by 6udicial pronouncements, it became necessary to redraft the law to inhere the spirit of the law and the intention of the lawmakers$ ) perusal of the &'%( )ct will show that there is neither definition nor e#en a mention of certain offending trade practices which are restricti#e in character$ Some illustrations of these are= )buse of 5ominance Cartels, Collusion and (rice .i"ing 9id 'igging 9oycotts and 'efusal to 5eal (redatory pricing

Dften an argument has been ad#anced that one particular general pro#ision NSection 0+o,O of the &'%( )ct may co#er all anti competition practices, as it defines an '%( as a trade practice which pre#ents, distorts or restricts competition and that therefore there is no need for a new law$ Ihile complaints relating to anti competition practices could be tried under the generic definition of restricti#e trade practice +which pre#ents, distorts or restricts competition,, the absence of specification of identifiable anti competition practices ga#e room to different interpretations by different Courts of 3aw, with the result that the spirit of the law often escaped being captured and enforced$ Ihile a generic definition might be necessary and might form the substanti#e foundation of the law, it was considered necessary to identify specific anti competition practices and define them so that the scope for a #al#e or

11

opening on technical grounds for the offending parties to escape indictment would not obtain$ :ence, the need for a new and better law was recognised, which ga#e birth to the Competition )ct, 0110$ .urthermore, some of the anti competition practices like cartels, predatory pricing, bid rigging etc$ are not specifically mentioned in the &'%( )ct but the &'%( Commission, o#er the years, had attempted to fit such offences under one or more of its sections by way of interpretation of the language used therein$ )nother dimension that marked the thinking of the ;o#ernment particularly after the 1991 economic reforms was the dynamic conte"t of International trade and market as well as the domestic trade and market$ Ihen the &'%( )ct was drafted in 19*9, the economic and trade milieu pre#alent at that time constituted the premise for its #arious pro#isions$ %here has been subse-uently a sea change in the milieu with considerable mo#ement towards liberalisation, pri#atisation and globalisation$ %he law needed to yield to the changed and changing scenario on the economic and trade front$ %his was one important reason why a new competition law had to be framed$ &any countries like the A$B$, Canada, )ustralia and the /uropean Community ha#e, in line with this thinking, enacted new competition laws and repealed their earlier laws go#erning fair trading, etc$ %he e"perience in administering the &'%( )ct, for about three decades since 19*9, the deficiencies noted in the said )ct, the difficulties that arose out of different interpretations and 6udgments of the &'%( Commission and the superior Courts of 3aw and the new and changing economic milieu spurred by the 3(; paradigm and the economic reforms of 1991 +and thereafter, impelled the need for a new competition law$ %he need for a new law has its origin in .inance &inister@s budget speech in .ebruary, 1999= %he &'%( )ct has become obsolete in certain areas in the light of international economic de#elopments relating to competition laws$ Ie need to shift our focus from curbing monopolies to promoting competition$ %he ;o#ernment has decided to appoint a committee to e"amine this range of issues and propose a modern competition law suitable for our conditions$! HI(H *EVE* COMMITTEE ON COMPETITION PO*ICY AND *A3 In Dctober, 1999, the ;o#ernment of India appointed a :igh 3e#el Committee on Competition (olicy and Competition 3aw1 to ad#ise a modern competition law for the country in line with international de#elopments and to suggest a legislati#e framework which may entail a new law or appropriate amendments to the &'%( )ct$ %he Committee presented its Competition (olicy report to the ;o#ernment in &ay 0111 Nthe report will be referred to hereinafter as :igh 3e#el Committee +0111,O$ %he draft competition law was drafted and presented to the ;o#ernment in Mo#ember 0111$ )fter some refinements, following e"tensi#e consultations and discussions with all interested parties, the (arliament passed in 5ecember 0110 the new law, namely, the Competition )ct, 0110$

The author was a Member of the Committee.

11

R)/RIC OF THE

NE3 *A3,

COMPETITION ACT, 4554 6ACT7

%here are three areas of enforcement that pro#ide the focus for most competition laws in the world today$ 0 )greements among enterprises )buse of dominance &ergers or, more generally, combinations among enterprises

%here are, howe#er, differences in emphasis and interpretations across countries and o#er time within countries$ %he abo#e mentioned three areas are not mutually e"clusi#e and there is considerable o#erlap between them$ ) number of actions that constitute abuse of dominance could infringe the law regarding agreements among enterprises$ %he actions are similar though the causes might be different$ In one case, it may be the 6oint action of one or more undertakings that is in -uestion, whereas in another, it may be the action of one dominant undertaking that is the dri#ing force$ %he concern with mergers is ultimately a concern with market power and the possible abuse of that market power by the merged entity$ In spite of this, most laws deal with this separately$ Dne reason for this is that it might be difficult to deal with the situation after the fact$ In spite of the ine#itable duplication that follows from this classification, it pro#ides a useful ta"onomy for organising the thinking about competition law$ %he rubric of the new law, Co$petitio" A#t, 4554 +)ct, for brief, has essentially four compartments= )nti Competition )greements )buse of 5ominance Combinations 'egulation Competition )d#ocacy %hese four compartments are described in the narrati#e that follows= ANTI 8 COMPETITION A(REEMENTS

Although it does not directly form a part of competition law, legislation regarding various Regulatory Authorities falls under the larger ambit of competition policy.
0

10

.irms enter into agreements, which may ha#e the potential of restricting competition$ ) scan of the competition laws in the world will show that they make a distinction between horiGontal! and #ertical! agreements between firms$ %he former, namely the horiGontal agreements are those among competitors and the latter, namely the #ertical agreements are those relating to an actual or potential relationship of purchasing or selling to each other$ ) particularly pernicious type of horiGontal agreements is the cartel$ Fertical agreements are pernicious, if they are between firms in a position of dominance$ &ost competition laws #iew #ertical agreements generally more leniently than horiGontal agreements, as, prima facie, horiGontal agreements are more likely to reduce competition than agreements between firms in a purchaser 7 seller relationship$

HORI9ONTA* A(REEMENTS )greements between two or more enterprises that are at the same stage of the production chain and in the same market constitute the horiGontal #ariety$ )n ob#ious e"ample that comes to mind is an agreement between enterprises dealing in the same product or products$ 9ut the market for the product+s, is critical to the -uestion, if the agreement trenches the law$ %he )ct has taken care to define the rele#ant market$ 2 %o attract the pro#ision of law, the products must be substitutes$ If parties to the agreement are both producers or retailers +or wholesalers,, they will be deemed to be at the same stage of the production chain$ ) specific goal of competition policy<law is and needs to be the pre#ention of economic agents from distorting the competiti#e process either through agreements with other companies or through unilateral actions designed to e"clude actual or potential competitors$ It needs to control agreements among competing enterprises +horiGontal agreements, on prices or other important aspects of their competiti#e interaction$ 3ikewise, agreements between firms at different le#els of the manufacturing or distribution processes +#ertical agreements, for e"ample between a manufacturer and wholesaler, which are likely to harm competition +albeit less harmful than horiGontal agreements, need to be addressed in the competition policy<law$ %he foremost constituent of any competition policy<law is ob#iously the ob6ecti#e to foster competition and its ob#erse is the need to deal effecti#ely against practices and conduct that sub#ert competition$ %he )ct reckons these propositions$ In general the rule of reason! test is re-uired for establishing that an agreement is illegal$ :owe#er, for certain kinds of agreements, the presumption is generally that they cannot ser#e any useful or pro7competiti#e purpose$ 9ecause of this presumption, the law makers do not sub6ect such agreements to the rule of reason! test$ %hey place such agreements in the per se illegal category +please see ne"t section,$ %he )ct presumes that the following four types of agreements between enterprises, in#ol#ed in the same or similar manufacturing or trading of goods or pro#ision of ser#ices ha#e an appreciable ad#erse effect on competition = )greements regarding prices$ %hese include all agreements that directly or indirectly fi" the purchase or sale price$

Relevant market is discussed in the section on abuse of dominance under the heading !roduct Market and "eographical Market , infra.
2

12

)greements regarding -uantities$ %hese include agreements aimed at limiting or controlling production, supply, markets, technical de#elopment, in#estment or pro#ision of ser#ices$ )greements regarding bids +collusi#e bidding or bid rigging,$ %hese include tenders submitted as a result of any 6oint acti#ity or agreement$ )greements regarding market sharing$ %hese include agreements for sharing of markets or sources of production or pro#ision of ser#ices by way of allocation of geographical area of market or type of goods or ser#ices or number of customers in the market or any other similar way$

PER SE I**E(A*ITY Such horiGontal agreements, which include membership of cartels, are presumed to lead to unreasonable restrictions of competition and are therefore presumed to ha#e an appreciable ad#erse effect on competition$ In other words, they are per se illegal$ %his pro#ision of per se illegality is rooted in the pro#isions of the AS law and has a parallel in most legislations on the sub6ect$ %he )ustralian law prohibits price fi"ing arrangements, boycotts and some forms of e"clusi#e dealing$ %he new AB competition law, namely, Competition )ct, 0111, endorses certain agreements to ha#e an appreciable effect on competition +presumption is howe#er rebuttable,$ ) per se illegality would mean that there would be #ery limited scope for discretion and interpretation on the part of the prosecuting and ad6udicating authorities$ %he underlying principle in such presumption of illegality is that the agreements in -uestion ha#e an appreciable anti competiti#e effect$ 9arring the aforesaid four types of agreements, all the others will be sub6ect to the rule of reasonP test in the )ct$ VERTICA* A(REEMENTS 9y and large, as noted earlier, #ertical agreements will not be sub6ected to the rigours of competition law$ :owe#er, where a #ertical agreement has the character of distorting or pre#enting competition, it will be placed under the sur#eillance of the law$ .or instance, the following types of agreements, inter alia, will be sub6ected to the rule of reason! test$ %ie 7 in arrangement? /"clusi#e supply agreement /"clusi#e distribution agreement? 'efusal to deal? 'esale price maintenance$

%he )ct lists the following factors to be taken into account for ad6udicatory purposes to determine whether an agreement or a practice has an appreciable ad#erse effect on competition, namely, a, creation of barriers to new entrants in the market, b, dri#ing e"isting competitors out of the market, c, foreclosure of competition by hindering entry into the market, d, accrual of benefits to consumers, e, impro#ements in production or distribution of goods or pro#ision of ser#ices, and

14

f, promotion of technical, scientific and economic de#elopment by means of production or distribution of goods or pro#ision of ser#ices$ E2CEPTIONS %he pro#isions relating to anti competition agreements will not restrict the right of any person to restrain any infringement of intellectual property rights or to impose such reasonable conditions as may be necessary for the purposes of protecting any of his rights which ha#e been or may be conferred upon him under the following intellectual property right statutes? the Copyright )ct, 19K7? the (atents )ct, 1971? the %rade and &erchandise &arks )ct, 19K4 or the %rade &arks )ct, 1999? the ;eographical Indications of ;oods +'egistration and (rotection, )ct, 1999? the 5esigns )ct, 0111? the Semi conductor Integrated Circuits 3ayout 5esign )ct, 0111$ %he rationale for this e"ception is that the bundle of rights that are subsumed in intellectual property rights should not be disturbed in the interests of creati#ity and intellectual<inno#ati#e power of the human mind$ Mo doubt, this bundle of rights essays an anti competition character, e#en bordering on monopoly power$ 9ut without protecting such rights, there will be no incenti#e for inno#ation, new technology and enhancement in the -uality of products and ser#ices$ :owe#er, it may be noted, that the )ct does not permit any unreasonable condition forming a part of protection or e"ploitation of intellectual property rights$ In other words, licensing arrangements likely to affect ad#ersely the prices, -uantities, -uality or #arieties of goods and ser#ices will fall within the contours of competition law as long as they are not in reasonable 6u"taposition with the bundle of rights that go with intellectual property rights$ Qet another e"ception to the applicability of the pro#isions relating to anti competition agreements is the right of any person to e"port goods from India, to the e"tent to which, an agreement relates e"clusi#ely to the production, supply, distribution or control of goods or pro#ision of ser#ices for such e"port$ In a manner of speaking, e"port cartels are outside the pur#iew of competition law$ In most 6urisdictions, e"port cartels are e"empted from the application of competition law$ ) 6ustification for this e"emption is that most countries do not desire any shackles on their e"port effort in the interest of balance of trade and<or balance of payments$ :olistically, howe#er, e"emption of e"port cartels is against the concept of free competition$ %he Central ;o#ernment has power under the )ct to e"empt from the application of the )ct, or any pro#ision thereof, a class of enterprises, a practice, an agreement etc$ %his has been gi#en a treatment later in this paper +see section titled /"emptions!,$ A/)SE OF DOMINANCE P5ominant (osition! has been appropriately defined in the )ct in terms of the position of strength, en6oyed by an enterprise, in the rele#ant market, in India, which enables it to +i, operate independently of competiti#e forces pre#ailing in the rele#ant market? or +ii, affect its competitors or consumers or the rele#ant market, in its fa#our!$ %his definition may perhaps appear to be somewhat ambiguous and to be capable of different interpretations by different

1K

6udicial authorities$ 9ut then, this ambiguity has a 6ustification ha#ing regard to the fact that e#en a firm with a low market share of 6ust 01L with the remaining 41L diffusedly held by a large number of competitors may be in a position to abuse its dominance, while a firm with say *1L market share with the remaining 41L held by a competitor may not be in a position to abuse its dominance because of the key ri#alry in the market$ Specifying a threshold or an arithmetical figure for defining dominance may either allow real offenders to escape +like in the first e"ample abo#e, or result in unnecessary litigation +like in the second e"ample abo#e,$ :ence, in a dynamic changing economic en#ironment, a static arithmetical figure to define dominance! may, perhaps, be an aberration$ Iith this suggested broad definition, the 'egulatory )uthority will ha#e the freedom to fi" errant undertakings and encourage competiti#e market practices, e#en if there is a large player around$ )buse of dominance is key for the )ct, in so far as dominant enterprises are concerned$ It is important to note that the )ct has been designed in such a way that its pro#isions on this count only take effect, if dominance is clearly established$ )s already stated, there is no single ob6ecti#e market share criterion that can be blindly used as a test of dominance$ %he )ct seeks to ensure that only when dominance is clearly established, can abuse of dominance be alleged$ )ny ambiguity on this count could endanger large efficient firms$ PROD)CT MARKET AND (EO(RAPHICA* MARKET 9efore assessing whether an undertaking is dominant, it is important, as in the case of horiGontal agreements, to determine what the rele#ant market is$ %here are two dimensions to this 7 the pro &#t $ar1et and the 'eo'raphi#a% $ar1et$ Dn the demand side, the rele#ant product market includes all such substitutes that the consumer would switch to, if the price of the product rele#ant to the in#estigation were to increase$ .rom the supply side, this would include all producers who could, with their e"isting facilities, switch to the production of such substitute goods$ %he geographical boundaries of the rele#ant market can be similarly defined$ ;eographic dimension in#ol#es identification of the geographical area within which competition takes place$ 'ele#ant geographic markets could be local, national, international or occasionally e#en global, depending upon the facts in each case$ Some factors rele#ant to geographic dimension are consumption and shipment patterns, transportation costs, perishability and e"istence of barriers to the shipment of products between ad6oining geographic areas$ .or e"ample, in #iew of the high transportation costs in cement, the rele#ant geographical market may be the region close to the manufacturing facility$ %he )ct posits the factors that would ha#e to be considered by the ad6udicating )uthority in determining the 'ele#ant (roduct &arket! and the 'ele#ant ;eographic &arket!, reproduced herein below= RE*EVANT PROD)CT MARKET physical characteristics or end use of goods? price of goods or ser#ice? consumer preferences? e"clusion of in house production? e"istence of specialised producers? classification of industrial products$

1*

RE*EVANT (EO(RAPHIC MARKET regulatory trade barriers? local specification re-uirements? national procurement policies? ade-uate distribution facilities? transport costs? language? consumer preferences? need for secure or regular supplies or rapid after sales ser#ices$

%he determination of Rrele#ant market@ by the ad6udicating )uthority has to be done, ha#ing due regard to the Rrele#ant product market@ and the Rrele#ant geographic market@$ PREDATORY PRICIN( Dne of the most pernicious forms of abuse of dominance is the practice of predatory pricing$ (redatory pricing occurs, where a dominant enterprise charges low prices o#er a long enough period of time so as to dri#e a competitor from the market or deter others from entering the market and then raises prices to recoup its losses$ %he greater the di#ersification of the acti#ities of the enterprise in terms of products and markets and the greater its financial resources, the greater is its ability to engage in predatory beha#iour$ (redatory price! is defined in the )ct to mean the sale of goods or pro#ision of ser#ices, at a price which is below the cost, as may be determined by regulations, of production of the goods or pro#ision of ser#ices, with a #iew to reduce competition or eliminate the competitors! +the e"pression regulations! means the regulations made by the Commission under the )ct,$ (redatory pricing, therefore is a situation where a firm with market power prices below cost so as to dri#e competitors out of the market and, in this way, ac-uire or maintain a position of dominance$ 9ut there is a danger of confusing pro competiti#e pricing with predatory beha#iour$ In reality, predation is only established after the fact i$e$ once the ri#al has left the market and the predator has ac-uired a monopoly position in the market$ :owe#er, any law to pre#ent is meaningful, only if it takes effect before the fact i$e$ before the competitor has left the market$ (redatory pricing is a kind of )ntitrust #iolation$ %he &onopolies and 'estricti#e %rade (ractices Commission in India in the &odern .ood Industries 3td$ +&'%( Commission, 199*, case obser#ed that the essence of predatory pricing is pricing below cost with a #iew to eliminating a ri#al$ .urther, the Commission made it clear that the mere offer of a price lower than the cost of production cannot automatically lead to an indictment of predatory pricing! and that e#idence of malafide intent to dri#e competitors out of business or to eliminate competition! is re-uired$ %he logic underlying the caution of the Commission is that price cutting may be for genuine reasons, for e"ample in the case of in#entory surplus$ (rice cutting has therefore to be coupled with the mens rea of eliminating a competitor or competition to become an offence under competition law +)ct,$ %he )ct outlaws predatory pricing as an abuse of dominance$ 17

5istinguishing predatory beha#iour from legitimate competition is difficult$ %he distinction between low prices, which result from predatory beha#iour and low prices, which result from legitimate competiti#e beha#iour is often #ery thin and not easily ascertainable$ Indeed, it is sometimes argued that predatory beha#iour is a necessary concomitant of competition$ %o -uote (rofessor Cagdish 9hagwati from his book ) stream of Iindows!= %he notion that J$$ companiesJ$$ compete in a benign fashion is faintly romantic and fully foolish$ Ihat the Cambridge economist Coan 'obinson used to call the animal spirits! of capitalist entrepreneurs surely are manifestJ$$ %he successful always appear more predatory$ JJ Iith success, one gets one@s share of en#y and resentment! +9hagwati, Cagdish, 1999,$

3HEN DOES A/)SE OF DOMINANCE ATTRACT THE *A3: %o attract the pro#ision of the )ct, it needs to be established whether the restraints create a barrier to new entry or force e"isting competitors out of the market$ %he key issue is the e"tent to which these arrangements foreclose the market to manufacturers +inter brand ri#alry, or retailers +intra brand ri#alry, and the e"tent to which these raise ri#als@ costs and<or dampen e"isting competition$ %he costs of such arrangements need to be weighed against the benefits$ .or e"ample, some of these restraints help to o#ercome the free rider problem and allow for the e"ploitation of scale economies in retailing$ 9efore proceeding to the ne"t compartment, a listing of factors from the )ct constituting dominanceP and! constituting Pabuse of dominanceP has been reproduced herein below$ 5ominance is determined by taking into account one or more of the following factors= market share of the enterprise? siGe and resources of the enterprise? siGe and importance of the competitors? economic power of the enterprise including commercial ad#antages o#er competitors? #ertical integration of the enterprise, or sale or ser#ice network of such enterprise? dependence of consumers on the enterprise? monopoly or dominant position whether ac-uired as a result of any statute or by #irtue of being a ;o#ernment company or a public sector undertaking or otherwise? entry barriers including barriers such as regulatory barriers, financial risk, high capital cost of entry, marketing entry barriers, technical entry barriers, economies of scale, high cost of substitutable goods or ser#ice for consumers? counter#ailing buying power? market structure and siGe of market? social obligations and social costs? relati#e ad#antage, by way of the contribution to the economic de#elopment, by the enterprise en6oying a dominant position ha#ing or likely to ha#e an appreciable ad#erse effect on competition? 14

any other factor which the Commission may consider rele#ant for the in-uiry$

)buse of dominance ha#ing an appreciable ad#erse effect on competition occurs if an enterprise, a, directly or indirectly, imposes unfair or discriminatory +i, condition in purchase or sale of goods or ser#ice? or +ii, price in purchase or sale +including predatory price, of goods or ser#ice, b, limits or restricts +i, production of goods or pro#ision of ser#ices or market therefor? or +ii, technical or scientific de#elopment relating to goods or ser#ices to the pre6udice of consumers? or c, indulges in practice or practices resulting in denial of market access? or d, makes conclusion of contracts sub6ect to acceptance by other parties of supplementary obligations which, by their nature or according to commercial usage, ha#e no connection with the sub6ect of such contracts? or e, uses its dominant position in one rele#ant market to enter into, or protect, other rele#ant market$ It may therefore be seen that the )ct does not frown upon dominance as such but frowns upon abuse of dominance$ COM/INATIONS RE()*ATION Combinations, in terms of the meaning gi#en to them in the )ct, include mergers, amalgamations, ac-uisitions and ac-uisitions of control, but for the purposes of the discussion that follows, mergers regulation has been reckoned$ )s in the case of agreements, mergers are typically classified into horiGontal and #ertical mergers$ In addition, mergers between enterprises operating in different markets are called conglomerate mergers$ &ergers are a legitimate means by which firms can grow and are generally as much part of the natural process of industrial e#olution and restructuring as new entry, growth and e"it$ .rom the point of #iew of competition policy, it is horiGontal mergers that are generally the focus of attention$ )s in the case of horiGontal agreements, such mergers ha#e a potential for reducing competition$ In rare cases, where an enterprise in a dominant position makes a #ertical merger with another firm in an ad6acent market to further entrench its position of dominance, the merger may pro#ide cause for concern$ Conglomerate mergers should generally be beyond the pur#iew of any law on mergers$ ) merger leads to a bad! outcome only if it creates a dominant enterprise that subse-uently abuses its dominance$ %o some e"tent, the issue is analogous to that of agreements among enterprises and also o#erlaps with the issue of dominance and its abuse, discussed earlier$ Fiewed in this way, there is probably no need to ha#e a separate law on mergers$ %he reason that such a pro#ision e"ists in most laws is to pre empt the potential abuse of dominance where it is probable, as subse-uent unbundling can be both difficult and socially costly$ %hus, the general principle, in keeping with the o#erall goal, is that mergers should be challenged only if they reduce or harm competition and ad#ersely affect welfare$ THE ACT ON COM/INATIONS RE()*ATION

19

%he )ct makes it #oluntary for the parties to notify their proposed agreement or combinations to the &ergers Commission, if the aggregate assets of the combining parties ha#e a #alue in e"cess of 's$ 1111 crores +about AS H 001 million, or turno#er in e"cess of 's$ 2111 crores +about AS H **1 million,$ %he combination as defined by the )ct includes mergers, amalgamations, ac-uisitions of shares, #oting rights or assets and ac-uisitions of control$ In the e#ent either of the combining parties is outside India or both are outside, the threshold limits are HK11 million for assets and H1K11 million for turno#er$ If one of the merging parties belongs to a group, which controls it, the threshold limits are 's$ 4111 crores +about AS H 441 million, in terms of assets and 's$ 10111 crores +about AS H 0*41 million, in terms of turno#er$ If the group has assets or turno#er outside India also, the threshold limits are H0 billion for assets and H* billion for turno#er$ .or this purpose a group means two or more enterprises which directly or indirectly ha#e= %he ability to e"ercise 0*L or more of the #oting rights in the other enterprise? or %he ability to appoint more than half the members of the 9oard of 5irectors in the other enterprise? or %he ability to control the affairs of the other enterprise$

Control +which e"pression occurs in the third bullet defining Rgroup@ abo#e,, has also been defined in the )ct$ Control includes controlling the affairs or management by +i, +ii, one or more enterprises, either 6ointly or singly, o#er another enterprise or group? one or more groups, either 6ointly or singly, o#er another group or enterprise$

%he threshold limits of assets and of turno#er would be re#ised e#ery two years on the basis of the Iholesale (rice Inde" or fluctuations in e"change rate of rupee or foreign currencies$ %he )ct has listed the following factors to be taken into account for the purpose of determining whether the combination would ha#e the effect of or be likely to ha#e an appreciable ad#erse effect on competition$ %he actual and potential le#el of competition through imports in the market? %he e"tent of barriers to entry to the market? %he le#el of combination in the market? %he degree of counter#ailing power in the market? %he likelihood that the combination would result in the parties to the combination being able to significantly and sustainably increase prices or profit margins? %he e"tent of effecti#e competition likely to sustain in a market? %he e"tent to which substitutes are a#ailable or are likely to be a#ailable in the market? %he market share, in the rele#ant market, of the persons or enterprise in a combination, indi#idually and as a combination? 01

 %he likelihood that the combination would result in the remo#al of a #igorous and effecti#e competitor or competitors in the market? %he nature and e"tent of #ertical integration in the market? %he possibility of a failing business? %he nature and e"tent of inno#ation? 'elati#e ad#antage, by way of the contribution to the economic de#elopment, by any combination ha#ing or likely to ha#e appreciable ad#erse effect on competition? Ihether the benefits of the combination outweigh the ad#erse impact of the combination, if any$ 9efore the )ct was passed by the (arliament, the draft law was placed on the website and a number of suggestions were recei#ed particularly, on the pro#isions relating to combinations regulation$ &any economists, e"perts and officials in the ;o#ernment were of the #iew that at the present le#el of IndiaSs economic de#elopment, combinations control should not lead to the shying away of foreign direct in#estment and participation by ma6or international companies in economic acti#ities through the route of mergers and ac-uisitions$ %hey suggested that combination appro#als +abo#e the specified threshold limits, may not be made mandatory$ Motification of combinations may on the other hand be made #oluntary, albeit with the risk of the disco#ery of anti competiti#e mergers at a later date with the concomitant cost of demergers etc$ )nother suggestion was to increase the threshold limit by doubling the limits in the draft law$ )ll these suggestions were gi#en due consideration by the ;o#ernment and the draft law refined before it was placed before the (arliament$ %he trigger cause in the aforesaid suggestions was the felt need for companies in India to grow in siGe in order to become globally competiti#e$ %he )ct has made the pre notification of combinations #oluntary for the parties concerned$ :owe#er, if the parties to the combination choose not to notify the CCI, as it is not mandatory to notify, they run the risk of a post combination action by the CCI, if it is disco#ered subse-uently, that the combination has an appreciable ad#erse effect on competition$ %here is a rider that the CCI shall not initiate an in-uiry into a combination after the e"piry of one year from the date on which the combination has taken effect$ %he 'egulatory )uthority, namely, the &ergers 9ench of the Competition Commission of India is mandated by the )ct to ad6udicate on mergers by weighing potential efficiency losses against potential gains$ In order that the Competition Commission of India +&ergers 9ench, should not delay its ad6udication on whether a merger may pass through or may be stopped because of its anti competiti#e nature, the )ct admonishes the 'egulatory )uthority to hand in its ad6udicatory decision within 91 working days, lest the merger will be deemed to ha#e been appro#ed$ %he )ct also pro#ides for limiting the 'egulatory )uthoritySs power to ask for information from the merging parties within a time frame of 1K working days with a corresponding obligation on the merging parties to furnish the information within a further 1K days$ %hus by law, the se-uencing of the ad6udicatory e"ercise has been set within specific time frames, so that 01

possible delays are a#oided$ .urthermore, mergers ha#e to be appro#ed by the State :igh Courts under the Companies )ct, 19K*$ Such appro#als take about * months to one year or e#en more and the 91 working days time limit for the &ergers 9ench will be subsumed in that period$ COMPETITION ADVOCACY In line with the :igh 3e#el CommitteeSs recommendation, the )ct e"tends the mandate of the Competition Commission of India beyond merely enforcing the law +:igh 3e#el Committee, 0111,$ Competition ad#ocacy creates a culture of competition$ %here are many possible #aluable roles for competition ad#ocacy, depending on a countrySs legal and economic circumstances$ ) recent D/C5 'eport noted as follows= PIn #irtually e#ery member country where significant reform efforts ha#e been undertaken, the competition agencies ha#e been acti#e participants in the reform process$ %his Rad#ocacy@ J can include persuasion offered behind the scenes, as well as publicity outside of formal proceedings$ Some competition agencies ha#e the power, at least in theory, to bring formal challenges against anti competiti#e actions by other agencies or official or -uasi official bodies$ &ore indirect, but still #isible, is formal participation in another agencySs public hearings and deliberations$ Ihat is appropriate depends on the particular institutional settingP +D/C5, 1997,$ %he 'egulatory )uthority under the )ct, namely, Competition Commission of India +CCI,, in terms of the ad#ocacy pro#isions in the )ct, is enabled to participate in the formulation of the countrySs economic policies and to participate in the re#iewing of laws related to competition at the instance of the Central ;o#ernment$ %he Central ;o#ernment can make a reference to the CCI for its opinion on the possible effect of a policy under formulation or of an e"isting law related to competition$ %he Commission is mandated to proffer its opinion to the Central ;o#ernment within *1 days of recei#ing the reference$ %he Commission will therefore be assuming the role of competition ad#ocate, acting pro acti#ely to bring about ;o#ernment policies that lower barriers to entry, that promote deregulation and trade liberalisation and that promote competition in the market place$ %he )ct seeks to bring about a direct relationship between competition ad#ocacy and enforcement of competition law$ Dne of the main ob6ecti#es of competition ad#ocacy is to foster conditions that lead to a more competiti#e market structure and business beha#iour without the direct penalty loaded inter#ention of the CCI$ Ander the scheme of the )ct, the CCI@s opinion will constitute an important input for the ;o#ernment to finalise its law or policy, in so far as it impacts on competition$ In order to promote competition ad#ocacy and create awareness about competition issues and also to accord training to all concerned +including the Chairperson and &embers of the CCI and its officials,, the )ct en6oins the establishment of a fund christened the Competition .und$ %he .und will be credited with the fees recei#ed for filing complaints and applications under the law, costs le#ied on the parties, grants and donations from the ;o#ernment, and the interest accrued thereon$ %he four main compartments ha#ing been discussed abo#e, a description of how the CCI is designed, follows, which is an important part of the )ct$ COMPETITION COMMISSION OF INDIA 6CCI7

00

)dministration and enforcement of the competition law re-uires an administrati#e set up$ %his administrati#e set up should be more proacti#e than reacti#e for the administration of the competition policy$ %his is not a mere law enforcement agency$ %his administrati#e set up should take a proacti#e stand to be specified and adopted to promote competition by not only proceeding against those who #iolate the pro#isions of the competition law, but also by proceeding against institutional arrangements and public policies that interfere with the fair and free functioning of the markets$ It is in this conte"t that the CCI in the )ct has been entrusted with the following two basic functions= a, )dministration and enforcement of competition law and competition policy to foster economic efficiency and consumer welfare$ b, In#ol#ement proacti#ely in ;o#ernmental policy formulation to ensure that markets remain fair, free, open, fle"ible and adaptable$ INVESTI(ATION, PROSEC)TION, COMPETITION COMMISSION INVESTI(ATION AND PROSEC)TION )d6udicati#e wing is distinct and separate from the in#estigati#e wing in the )ct$ )t the ape" le#el of the in#estigati#e wing, there is an official who has been designated as 5irector ;eneral +5;,$ %he 5irector ;eneral will not ha#e suo motu powers of in#estigation$ :e will only look into the complaints recei#ed from the CCI and submit his findings to it$ In#estigators will be solely responsible for making en-uiries, for e"amining documents, for making in#estigations into complaints and for effecting interface with other in#estigati#e agencies of the ;o#ernment including &inistries and 5epartments$ %he 5; has been #ested under the )ct with powers, which are conferred on the CCI, namely, summoning of witnesses, e"amining them on oath, re-uiring the disco#ery and production of documents, recei#ing e#idence on affida#its, issuing commissions for the e"amination of witnesses etc$ %he )ct mandates that the in#estigation staff would need to be chosen from among those, who ha#e e"perience in in#estigation and who are known for their integrity and outstanding ability$ %hey should ha#e knowledge of accountancy, management, business, public administration, international trade, law or economics$ :itherto, in terms of the dispensation under the &'%( )ct, they were drawn routinely from those working in the 5epartment of Company )ffairs$ %he )ct thus induces professionalism in the in#estigati#e wing, a step in the right direction$ $ 5epending on the load, the ;o#ernment would create 5eputy 5irectors ;eneral in all the cities where 9enches of CCI are situated$ %hey will in#estigate the cases referred to them from the )dditional +regional, 9enches and submit their findings to them direct without necessarily routing it through 5irector ;eneral at :ead-uarters$ %he )ct en#isages one (rincipal 9ench and )dditional 9enches, besides &erger 9ench +es,$ %he schema of placement of the in#estigating staff and the procedure and drill for submission of their reports to the CCI and its 9enches will be laid down, it is e"pected, by the CCI and the ;o#ernment, under Statutory 'ules, Statutory 'egulations or otherwise$ AD0)DICATION, MER(ERS COMMISSION
AND

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It is desirable to prepare guidance manuals spelling out the nature, scope and manner of in#estigation$ 9y and large, the in#estigation staff should follow these manuals and any departure therefrom must ha#e the prior appro#al of the 5irector ;eneral$ %his is to ensure that there are no fishing and rowing! en-uiries designed to threaten and harass corporates$ AD0)DICATION Central to effecti#e implementation and enforcement of competition policy and competition law is an appropriate competent and effecti#e ad6udicati#e body, in the instant case, the Competition Commission of India$ CCI will be the ad6udicating body under the )ct with autonomy and administrati#e powers$ CCI will be a multi member body with its Chairperson and &embers chosen for their e"pertise, knowledge and e"perience in /conomics, 3aw, International %rade, 9usiness, Commerce, Industry, .inance, )ccountancy, &anagement, (ublic )ffairs or )dministration$ %he )ct stipulates that the Chairperson and &embers shall be selected from those, who ha#e been, or are -ualified to be Cudges of the :igh Courts or from those who ha#e special knowledge of any of the disciplines listed abo#e$ %hey should not only ha#e special knowledge in one or more of the aforesaid areas, but also ha#e e"perience of not less than 1K years therein$ 9esides, they need to be persons of ability, integrity and standing$ /ach 9ench will ha#e a 6udicial member, as it will ha#e the power of imposing sentences of imprisonment, in addition to le#ying fines$ MER(ERS /ENCH .or the cases of mergers, amalgamations etc$ which need to be e"amined on the touchstone of competition, the )ct proposes to ha#e a separate &ergers 9ench, which will be a part of the Competition Commission of India$ %his is to ensure that there is no a#oidable delay in dealing with such scrutiny, as delays can pre#ent bodies corporate from being competiti#e globally$ )n important rider in the merger pro#isions, as noted earlier, is that if the &ergers 9ench does not finally decide against a merger within a stipulated period of ninety working days, it would be deemed that appro#al has been accorded$ COMPETITION COMMISSION OF INDIA AND SE*ECTION OF CHAIRPERSON AND MEM/ERS In order to ensure competent and effecti#e implementation of competition policy and competition law, it is important and imperati#e to select suitable persons, suitability ha#ing been described in the earlier paragraphs$ It cannot be o#er emphasised that ;o#ernment ought to ensure that the CCI is free of political control$ Ihile, it is practically difficult to eliminate political fa#ouritism, it can be minimised to a great e"tent by resorting to what may be described as a Collegium Selection (rocess!$ %he )ct, as passed by the (arliament, has left the selection procedure to the ;o#ernment, which will therefore frame 'ules in this regard$ It is belie#ed that the ;o#ernment has opted for a search committee procedure for the selection of Chairperson and &embers$ STAT)S OF THE CHAIRPERSON ; MEM/ERS OF CCI %he status of the Chairperson and &embers of the CCI has been left to the ;o#ernment for specification by Statutory 'ules$ It is understood that the ;o#ernment has prescribed the

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status of the Chairperson to be e-ual to that of a Cudge of the :igh Court and that of the &embers to be e-ual to that of a Secretary to the Central ;o#ernment$ .uthermore, according to the )ct, the age cap for the Chairperson is *7 years and that for the &embers is *K years$ %he )ct has created a bar for the Chairperson and &embers for a period of one year from the date on which they cease to hold office, to accept any employment in, or connected with the management or administration of any enterprise which has been a party to a proceeding before the Commission under the )ct$ E2EMPTIONS %he )ct pro#ides for the ;o#ernment to bring into force its different pro#isions on different dates by a notification$ .urthermore, it empowers the Central ;o#ernment by notification to e"empt from the application of the law or any part thereof for such period, as it deems fit, +a, any class of enterprises if such e"emption necessary in the interest of security of the State or public interest? +b, any practice or agreement arising out of and in accordance with any obligation assumed by India under any treaty, agreement or con#ention with any other country or countries ? +c, any enterprise which performs a so#ereign function on behalf of the Central ;o#ernment or a State ;o#ernment$ %he aforesaid pro#isions in the )ct relating to e"emptions should enable the ;o#ernment to take care of the countrySs goals, ob6ecti#es and needs$ %he )ct pro#ides fle"ibility to the ;o#ernment to use this pro#ision appropriate to the needs of the country$ APPEA* AND REVIE3 PROVISIONS )ppeals against decisions and orders of the CCI lie to the Supreme Court within the limitation period of *1 days$ )ppeals can be on one or more of the grounds specified in Sec$ 111 of the Code of Ci#il (rocedure$ %hus, the status gi#en to the CCI is #ery high with only the Supreme Court ha#ing the power to o#erturn its orders$ %he CCI has power under the )ct to re#iew its own order on an application made by the party aggrie#ed by its order$ E2TRATERRITORIA* REACH %he )ct has e"tra territorial reach$ Its arm e"tends beyond the geographical contours of India to deal with practices and actions outside India which ha#e an appreciable ad#erse affect on competition in the rele#ant market in India$ %he Competition Commission of India has the power to en-uire into an agreement, abuse of dominant position or combination, if it has or is likely to ha#e an appreciable adverse affect on competition in the relevant market in India, notwithstanding that, an agreement has been entered into outside India? any party to such agreement is outside India? any enterprise abusing the dominant position is outside India? a combination has taken place outside India? any party to combination is outside India? or any other matter or practice or action arising out of such

0K

agreement or dominant position or combination is outside India$ %he abo#e pro#isions are based on what is known as the Reffects doctrine@$ %his doctrine implies that e#en if an action or practice is outside the shores of India but has an impact or effect on competition in the rele#ant market in India, it can be brought within the ambit of the )ct, pro#ided the effect is appreciably ad#erse on competition$ NE3 3INE IN A NE3 /OTT*E )fter the )ct was placed on the web site and came into the public domain, a -uestion often asked is whether it is not still the old law in substance although not in form$ ) clear answer to this -uestion is in the title of this section$ %he )ct is a new wine in a new bottle$ %he differences between the old law +namely the &'%( )ct, 19*9, and the new law +the Competition )ct, 0110, may perhaps be best captured in the form of a table displayed below=

MRTP ACT, +,-, 1 0 2 4 K * 7 4 9 11 11 10 12 14 9ased on the pre reforms scenario 9ased on siGe as a factor Competition offences implicit or not defined Comple" in arrangement and language 14 per se offences negating the principles of natural 6ustice .rowns upon dominance 'egistration of agreements compulsory Mo combinations regulation Competition Commission appointed by the ;o#ernment Fery little administrati#e and financial autonomy for the Competition Commission Mo competition ad#ocacy role for the Competition Commission Mo penalties for offences 'eacti#e and rigid Anfair trade practices co#ered

COMPETITION ACT, 4554 9ased on the post reforms scenario 9ased on structure as a factor Competition offences e"plicit and defined Simple in arrangement and language and easily comprehensible 4 per se offences and all the rest sub6ected to rule of reason$ .rowns upon abuse of dominance Mo re-uirement of registration of agreements Combinations regulated beyond a high threshold limit$ Competition Commission selected by a Collegium +search committee, 'elati#ely more autonomy for the Competition Commission Competition Commission has competition ad#ocacy role (enalties for offences (roacti#e and fle"ible Anfair trade practices omitted +consumer fora will deal with them,

%he )ct is therefore a new wine in a new bottle$ Iine gets better as it ages$ %he e"tant &'%( )ct 19*9 has aged for more than three decades and has gi#en birth to the new law +the )ct, in line with the changed and changing economic scenario in India and rest of the world and in line with the current economic thinking comprising liberalisation, pri#atisation and globalisation$ PHASE<IN OF THE VARIO)S S)/STANTIVE PORTIONS OF THE ACT 0*

%he )ct co#ers all of the 09 States +and * Anion %erritories, of India, e"cept for the State of Cammu and Bashmir$ %hus far +as of .ebruary 02, 0114,, the Central ;o#ernment has made effecti#e only the competition ad#ocacy functions of the CCI$ %he Central ;o#ernment has filled certain staff positions$ %he substanti#e pro#isions of the )ct dealing with )nti Competiti#e )greements, )buse of 5ominance, and Combinations +&erger, 'egulation ha#e not been made operati#e$ In the meantime, the &onopolies and 'estricti#e %rade (ractices )ct +and &'%( Commission, continues to be applicable$ EFFECTIVE ENFORCEMENT %he gains sought through competition law can only be realised with effecti#e enforcement$ Ieak enforcement of competition law is perhaps worse than the absence of competition law$ Ieak enforcement often reflects a number of factors such as inade-uate funding of the enforcement authority$ %he ;o#ernment should pro#ide the re-uired infrastructure and funds to make the Competition Commission an effecti#e %ribunal to pre#ent, if not eliminate anti competition practices and also to play its role of competition ad#ocacy$

REFERENCES AND READIN(S

1$ )hluwalia, I$C +1991,= R(roducti#ity and ;rowth in Indian &anufacturing@, D"ford Ani#ersity, (ress, 5elhi, 1991$ R(lanning for Industrialisation and %rade (olicies since 19K1@, D"ford Ani#ersity (ress, 5elhi, 1971$ R.oreign %rade 'egimes and /conomic 197K 5e#elopment= India@, ) Special Conference Series on .oreign %rade 'egimes and /conomic 5e#elopment M9/', Mew Qork, 197K$ R) Stream of Iindows 7 Ansettling 'eflections on %rade, Immigration and 5emocracy@, D"ford Ani#ersity (ress, Mew 5elhi, 1999$ %he 1991s= %he decade of ;lobal Competition, Iithout 'estricti#e 9usiness (racticesT!, Dccasional (aper, International Condition for 5e#elopment 07

0. 9hagwati, C$M and 5esai, ( +1971,=

2. 9hagwati, C$M and Srini#asan, %$M$ +197K,=

4$ 9hagwati Cagdish +1999,=

K$ 9rusick, (hilippe +1990,=

)ction, 1990$ *$ /wing By, +0112,=

9russels,

Mo#ember

Competition 'ules for the 01st Century= (rinciples from )merica@s e"perience!, Bluwer 3aw International, %he :ague, 0112$ 'eport of R%he :igh 3e#el Committee on Competition (olicy and 3aw@ 7 5ept$ of Company )ffairs, ;o#t$ of India, Mew 5elhi, 0111$

7$ :igh 3e#el Committee +0111,=

4$ &'%( Commission +1994,=

5irector ;eneral Fs$ 5eepak .ertiliGers and (etro Chemicals Corporation 3td 7 1994 7 0 7 C%C 7 0K2 7 &'%(C, Mew 5elhi, 1994$ 5ecision of the &onopolies and 'estricti#e %rade (ractices Commission in &odern .ood Industries 3td$ case 199* 2 Comp 3C 1K4, Mew 5elhi, 199*$ 0 D/C5 'eport on 'egulatory 'eform 0*K, 1997$ R'eport of the :igh (owered /"pert Committee on Companies and &'%( )cts@, &inistry of 3aw, Custice and Company )ffairs, ;o#ernment of India, Mew 5elhi, )ugust, 1974$ :industan 3e#er 3td Fs$ %ata Dil &ills Co$, 3td$, S3( 1111*<94 dated 04 Dctober 1994$

9$ &'%( Commission +199*,=

11$ D/C5 +1997,= 11$ Sachar Committee +1974,=

10$ Supreme Court +1994,=

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