COMPETITION LAW - The Competition Act, 2002.

The Competition Act 2002

The MRTP Act 1969: Predecessor of the Competition Act, 2002 

• The MRTP Act was the operative Competition Law of India until it was repealed in the year 2009. 
• The MRTP Act aimed at preventing (a) economic power concentration in a few hands and curbing monopolistic behaviour and (b) prohibition of monopolistic, unfair or restrictive trade practices. The intention behind this was both to protect consumers as well as to avoid the concentration of wealth. 
• Considering the changing economic situation and initiation of economic reforms in the country post-1991, the need was felt for a change in approach towards fostering competition. Against this background, the Finance Minister of India in his budget speech in February 1999 made the following statement in the context of the then-existing MRTP Act. 
• “The MRTP Act has become obsolete in certain areas in the light of international economic developments relating to competition laws. We need to shift our focus from curbing monopolies to promoting competition. The Government has decided to appoint a committee to examine this range of issues and propose a modern competition law suitable for our conditions.” 

Objectives of the Competition Act, 2002

1. To provide the framework for the establishment of the Competition Commission
2. To prevent monopolies and to promote competition in the market
3. To protect the freedom of trade for the participating individuals and entities in the market
4. To protect the interest of the consumer

The Competition Commission

• The Competition Commission of India is established under the Competition Act, 2002. It is a statutory body that has the power to govern and enforce the Competition Act including penalties.  
• The Commission is composed of a chairman and a minimum of 2 board members and a maximum of 6 board members. These members are required to have a minimum of 15 years of experience in their respective fields. Its objectives, duties and powers are enumerated in the Competition Act, 2002. Its main duty and object are to ensure that the Indian markets maintain a healthy and fair competitive environment and is granted the power to ensure such an environment and penalise any acts adversely affecting its duties. 

ANTI-COMPETITIVE AGREEMENTS

• Anti-Competitive agreements are agreements that are made by two or more companies competing in the same market to fix prices or reduce stocks etc, so as to manipulate the market favourably for them. 

• This has the effect of the companies reducing the competition in the market which adversely affects the end consumer. 

• Section 3 of the Competition Act states that any agreement which causes or is likely to cause an Appreciable Adverse Effect (AAE) on Competition (AAEC) in India is deemed anti-competitive. 

• Section 3 (1) of the Competition Act prohibits any agreement with respect to “production, supply, distribution, storage, and acquisition or control of goods or services which causes or is likely to cause an appreciable adverse effect on competition within India”. 

• Although the Competition Act does not define AAEC and nor is there any thumb rule to determine when an agreement causes or is likely to cause AAEC,  Section 19 (3) of the Act specifies that the Commission shall, while determining whether an agreement has an appreciable adverse effect on competition under section 3, have due regard to all or any of the following factors, namely….....

• Creation of barriers to new entrants in the market;
• Driving existing competitors out of the market;
• Foreclosure of competition by hindering entry into the market;
• Accrual of benefits to consumers;
• Improvements in production or distribution of goods or provision of services;
• Promotion of technical, scientific and economic development by means of production or distribution of goods or provision of services.

• Section 3(3) of the Competition Act provides that agreements or a ‘practice carried’ on by enterprises or persons (including cartels) engaged in the trade of identical or similar products are presumed to have AAEC in India if they:- 

• Directly or indirectly fix purchase or sale prices; 
• Limit or control production, supply, markets, technical development, investments or provision of services; 
• Result in sharing markets or sources of production or provision of services; 
• Indulge in bid-rigging or collusive bidding. 

Fx Enterprise Solutions India Pvt. Ltd. v. Hyundai Motor India Limited (2014). 

In the case, the Informant had alleged that according to the agreement with Hyundai, dealers were mandated to procure all automobile parts and accessories from Hyundai or through their vendors only. While collaborating on alleged anti-competitive practices of Hyundai, the Informant stated that Hyundai imposed a “Discount Control Mechanism”, whereby dealers were only permitted to provide a maximum permissible discount and dealers were also not authorized to give discount beyond a recommended range, thereby amounting to “resale price maintenance” in contravention of Section 3(4)(e) of the Act.

The CCI in the case observed that Hyundai through exclusive agreements and arrangements contravened provisions of Section 3(4)(e) read with Section 3(1) of the Act through arrangements that resulted in Resale Price Maintenance. The CCI while imposing a penalty of INR 87 Crore on Hyundai noted that the infringing anti-competitive conduct of Hyundai in the case included putting in place arrangements, which resulted in Resale Price Maintenance by way of monitoring maximum permissible discount level through a Discount Control Mechanism and also a penalty mechanism for non-compliance of the discount scheme.

ABUSE OF DOMINANCE

• Section 4 prohibits any enterprise from abusing its dominant position. 

• The term ‘dominant position’ has been defined in the Act as ‘a position of strength, enjoyed by an enterprise, in the relevant market, in India, which enables it to operate independently of competitive forces prevailing in the relevant market; or affect its competitors or consumers or the relevant market in its favour’. 

• The Act defines the relevant market as ‘with the reference to the relevant product market or the relevant geographic market or with reference to both the markets’. 

• The relevant product market is defined as ‘a market comprising all those products or services which are regarded as interchangeable or substitutable by the consumer, by reason of characteristics of the products or services, their prices and intended use’. 

• The Competition Act provides that the CCI shall determine the relevant product market having due regard to all or any of the following factors: 

• Physical characteristics or end-use of goods 
• Price of goods or service 
• Consumer preferences 
• Exclusion of in-house production 
• Existence of specialized producers 
• Classification of industrial products 

• The 'relevant geographic market' is defined as ‘a market comprising the area in which the conditions of competition for the supply of goods or provision of services or demand of goods or services are distinctly homogenous and can be distinguished from the conditions prevailing in the neighbouring areas.’

• The Act further provides that the CCI shall determine the relevant geographic market having due regard to all or any of the following factors : 

• Regulatory trade barriers; 
• Local specification requirements; 
• National procurement policies; 
• Adequate distribution facilities; 
• Transport costs; 
• Language; 
• Consumer preferences; 
• Need for secure or regular supplies or rapid after-sales services. 

• The abuse of dominance analysis under the Act starts with the determination of market, once the relevant market has been determined; the CCI’s next task is to establish whether the enterprise enjoys a dominant position. 

• It is important to note here that the Act does not prohibit the mere possession of dominance that could have been achieved through superior economic performance, innovation or pure accident but only its abuse. 

The Act sets out the following factors which the CCI will consider to establish the dominant position of an enterprise : 

• Market share of the enterprise; 
• Size and resources of the enterprise; 
• Size and importance of the competitors; 
• The economic power of the enterprise including commercial advantages over competitors; 
• Vertical integration of the enterprises or sale or service network of such enterprises; 
• Dependence of consumers on the enterprise; 
• Monopoly or dominant position whether acquired as a result of any statute or by virtue of being a Government company or a public sector undertaking or otherwise; 

The Act sets out the following factors which the CCI will consider to establish the dominant position of an enterprise : 

• Entry barriers including barriers such as regulatory barriers, financial risk, the high capital cost of entry, marketing entry barriers, technical entry barriers, economies of scale, high cost of substitutable goods or service for consumers; 
• Countervailing* buying power; 
• Market structure and size of the market; 
• Social obligations and social costs; 
• Relative advantage, by way of the contribution to the economic development, by the enterprise enjoying a dominant position having or likely to have an appreciable adverse effect on competition; 
• Any other factor which the Commission may consider relevant for the inquiry. 

*offset the effect of (something) by countering it with something of equal force

Dominance per se is not bad. It is only when there is an abuse of the dominant position that Section 4 of the Competition Act is invoked. Thus, once the dominance of an enterprise in the relevant market is determined the CCI must establish the abuse of its dominance by an enterprise. Section 4 (2) sets out a list of activities that shall be deemed an abuse of dominant position. 

1. Anti-competitive practices of imposing unfair or discriminatory trading conditions or prices or predatory prices, 
2. Limiting the supply of goods or services, or a market or technical or scientific development, denying market access, 
3. Imposing supplementary obligations having no connection with the subject of the contract, or 
4. Using dominance in one market to enter or protect another relevant market. 

Uber India Systems Private Limited v CCI (2019), the Supreme Court held that the losses made by Uber per trip were prima facie indicative of abuse (through predatory pricing) as well as of dominance itself.

Shri Shamsher Kataria v Honda Siel Cars India Ltd & Ors (2014) (Auto Parts case), the CCI considered the passenger vehicle market and the aftermarkets comprising spare parts, diagnostic tools and provision of after-sales repair and maintenance services. It found that 14 car companies had abused their dominant positions in their respective aftermarkets by requiring customers to purchase spare parts and diagnostic tools solely from the respective car manufacturer or its authorised dealers. The CCI held that this amounted to a denial of market access to competitors, applying the essential facilities doctrine. The CCI also found that the car manufacturers had engaged in excessive pricing of their spare parts. This finding has been confirmed by the COMPAT (2016). On appeal by three of the car manufacturers, the Supreme Court has stayed the operation of the COMPAT’s judgment.

Remedies

Remedies against AAEC agreements and abuse of dominant position are provided by the Competition Commission of India. Upon a review and enquiry into the alleged practices the Competition Commission may pass the following orders:

1. Direct the discontinuance of such practices
2. Impose a penalty that is less than 10% or the turnover of the preceding three financial years; in the case of a cartel the penalty shall be 10% or three times the turnover of every financial year and shall continue for the period of continuance of such practices
3. Direct the modification of such an agreement or abuse so as to curtail its adverse effect upon the competition of the market
4. Pass any order that it may so deem fit.

COMBINATIONS

It is the acquisition of one or more companies by one or more people or merger or amalgamation of enterprises shall be treated as ‘Combination’ of such enterprises and persons in the following cases: 

• Acquisition by large enterprises; 
• Acquisition by a group; 
• Acquisition of enterprise having similar goods/services; 
• Acquisition of enterprise having similar goods/services by a group; 
• The merger of enterprises; 
• Merger in group company. 
• Any combination that causes or is likely to cause an appreciable adverse effect on competition (AAEC) in markets in India is void. 

Business Perspective

The various matters to be kept in mind by the business houses are:

1. The markets are susceptible to the formation of cartels which pose a risk of the formation of monopolies. The awareness of the fact that such associations are not permitted under the Competition Act 2002 is essential.
2. When discussions are made with competitors documentation of the same should be done.
3. Any meetings wherein any matter is being discussed, which shall raise issues under the competition law shall be avoided.
4. It is advisable to avoid discussions pertaining to price and the actual cost to the company.
5. Appointment of an Ombudsman for advice on the Competition Law so as to prevent any legal issues may be done.
6. Communication aspects although seem trivial may leave an impact when it comes to abuse of dominant position issues. Any statements made shall be weighed carefully.

WORKING OF CCI