The Salient Features of Competition Act,2002 along with Important Definitions & Precedents

BY LABDHI JAIN

LEGAL INTERN, H.K. LAW OFFICES

“Competition is the key to success.”[1]                                                                           

ABSTRACT

When markets work hard, they bring sustainability, profits, efficiency, innovation and long-term benefits to the economy.  Competition law is one of the laws aimed primarily at eradicating anti-competitive practices by preventing the abuse of anti-competitive contracts and prevailing market conditions. The purpose of this Section is to explore key aspects of competition law and to present these basic concepts precisely to the reader. Consumer awareness of competition laws is essential because in  many cases consumers are unaware of the harmful effects of such practices and do not realize that  these practices are dominating the market. If the market is not competitive, it creates monopolies and oligopoly’s, which are detrimental in the long run. 

 INTRODUCTION 

There is a growing recognition that a flexible, dynamic and competitive private sector is essential to promote sustainable economic development. Promotion of competition offers more high-quality products at lower prices. Competition also promotes greater accountability and transparency and reduces corruption and lobbying. Competition as an efficient system for market operations stimulates entrepreneurship and expands choices. Economic theory assumes that in a competitive market price and quantity are balanced to a level that produces an effective outcome. Competition laws and policies do not kill competition, but promote competition by punishing anti-competitive behaviours such as anti-competitive agreements and abuse of power. Competition in any field is considered  a healthy practice that creates opportunities and motivates if conducted legally. Perfect competition is where all firms sell a homogeneous and fully sharable product, all producers and consumers accept prices, all firms have a relatively small market share, and buyers and sellers It can be defined as an informed market outcome. The price and quality of products The industry is classified as free entry and exit and there are no external factors. This is the basis on which the market system works and the economy grows (control).  

Most competition laws provide three areas of enforcement. 

(i) anti-competitive agreements involving cartels; 

(ii) misuse of a position of power; and 

(iii) Mergers that may have anti-competitive effects. 

AN OVERVIEW OF THE LAW

The Competition Law was passed in  2002 and  came into force on  January 13, 2003. The aim of the act is to provide for establishment of a Commission (i.e. Competition Commission of India) to prevent anticompetitive practices, to promote and sustain competition in the market, to protect the consumers and to ensure freedom of trade carried on by the other participants of the market. 

The Act regulates three Anticompetitive practices namely Anticompetitive agreements, Abuse of Dominant Position and Mergers & Acquisitions (Combinations). The main criteria used for the regulation of anticompetitive practices are that such practices should not cause an appreciable adverse effect on competition within India. “Section 3 of the Act explains as to what agreements are anticompetitive in nature and it classifies such agreements into two categories namely Horizontal agreements and vertical agreements.”[2] “Section 4 addresses the issue of abuse of control and provides a list of actions that may constitute abuse of control. Additional sections 5 and 6 describe aspects of consolidation and  prescribe certain rules for regulating consolidation.”[3]

 KEY CONCEPTS & SALIENT FEATURES OF THE COMPETITION ACT 2002 

To understand the law in detail, it is important to understand some important concepts and features of the law. They are described below: 

The Act provides  several key definitions that must be understood in order to understand the function of the Act. These include: 

Cartel: The law defines a “cartel” as an association of manufacturers, sellers, distributors, traders or service providers who produce, distribute, sell or price or trade by agreement between them. Provision of goods or services Enterprise: For purposes of “section 2(h) of the Act, “enterprise” means and includes any individual or governmental entity that has engaged in, has engaged in, or has been involved in, 100 or participating in any of the following activities: 

(i) manufacture, store, supply, distribute, purchase or control any item or commodity; 

(ii) providing services of any kind; 

(iii) Investing in or underwriting any business that owns or trades stocks or other securities of any other legal entity, either directly or through its subsidiaries;”[4] However, departments of government that carry out activities related to the sovereign function of government, including those related to nuclear, currency, defence and space, are not “enterprises” for purposes of the law. 

Person: According to the “Section 2(i) of the Act the definition of ‘person’ is- 

(i) an individual, an undivided Hindu  family, company or company; 

(ii) associations of individuals, whether registered in India or abroad; 

(iii) Any corporation established by Central or government or a Government Company as defined under Companies Act.

(iv) Anybody corporate incorporated by or under the laws of a rustic outside India

(v) Any Cooperative Society, government agency or an artificial juridical person.”[5]

Relevant Market: The definition of the term ‘relevant market’ relies on two terms namely ‘relevant geographic market’ and ‘relevant product market’ as section 2(r)[6] of the Act lays down that for determination of relevant market. Commission needs to refer either ‘relevant geographic market’ or ‘relevant product market’ or both.

(i) Relevant geographic market implies a market in a section where homogeneous conditions prevails for various aspects of trade and commerce. 

(ii) Relevant Product Market refers to a market where the products and services are of such a nature that those will be interchanged or substituted by other products and services available in this market.

BASIC CONCEPTS OF LAW 

The Competition Law of 2002 mainly deals with  four concepts, which are explained below:

 (I) Anti-Competition Agreement 

An anti-competitive agreement is an agreement between people involved in a business transaction that tends to harm competition in a particular market or that provides an undue advantage to at least one person or group rather than losing another. Such anti-competitive agreements are prohibited by the Competition Act 2002. “The term “contract” as defined in section 2(b) of the Act provides that the contract need not be in the form of an appropriate document signed by the parties, it should or might not be in writing.”[7]Clearly, the definition so provided is inclusive in nature and not exhaustive and could be a wide one.

The main reason for adopting a good connotation for the term `agreement` in Competition law is because the persons so involved in anticompetitive activities might not enter into formal written agreements so on keep it a secret affair. as an example, Cartels are usually shrouded in secrecy. According to the provisions of Section 3 of the Law, anti-competition contracts are divided into two categories: horizontal contracts and vertical contracts. 

A. HORIZONTAL CONTRACT: This is an agreement between two or more entities or entities that are generally equivalent in terms of production,  distribution of supply, etc. in the same market. For example, an agreement in which a manufacturer of a particular product agrees not to sell a selected product at a price lower than an agreed upon price or  not supply the product to a particular market is considered a horizontal anti-competitive agreement. 

The Competition Act 2002 prohibits horizontal contracts that: 

(i) A contract that fixes a direct or indirect price for the purchase or sale of a product.

(ii) Agreements on the control of restrictions, production, supply, investment and provision of services in relation to specific products and  selected quantities.

(iii) market sharing agreements; 

(iv) Agreement on Bidding Tactics.

(v) Agreements within the variety of Cartels.  

Cartels are created by anticompetitive horizontal agreements among business enterprises. They pose an excellent threat to competition and ultimately tend to destroy the trade. after all cartels are secret agreements between business firms with the only real objective of fixing prices or sharing markets between them.

 (b) VERTICAL AGREEMENTS: “They are in line with Section 3(4) of the Act “vertical agreements” are those agreements which occur among enterprises or persons at different stages or levels of production in respect of production, supply, distribution, storage, sale or price of products etc. as an example, any agreement between manufacturer and wholesaler which might adversely affect competition within the market are termed as a vertical anticompetitive agreement.”[8]Competition Act, 2002 envisages various forms of Vertical agreements. These are: 

(i) Tie-in Arrangement: This arrangement includes any agreement that needs the purchaser of the products to buy another goods together with the desired goods as a condition mandate. Such reasonably agreements is typically entered into by the sellers so on increase their sales and earn more profit. A tie-in arrangement will become illegal when an enterprise uses its market power that it’s on a selected product and by taking advantage doesn’t sell or lease that product to the customer until and unless he agrees to shop for another product that the enterprise wants him to shop for. 

(ii) Exclusive Supply Agreement: Such contracts are usually entered into  using dominant market position. For example, a buyer of a certain product contracts with a manufacturer to avoid producing the same product for another buyer. However, such agreements should not be confused with agreements between the buyer and seller/manufacturer regarding specifications, quality, size, etc., which are legal and not inherently anti-competitive. “Section 5 of this Act defines combinations by setting certain thresholds at which combinations are not subject to competition law scanners.”[9] The main justification for imposing these restrictions is that the combination of small businesses or organizations cannot have a noticeable negative impact on competition in the Indian market. The restrictions provided under Section 5 of the Act are set forth below. 

(a) Acquiring Shares, Voting Rights, or Control Rights: The acquirer of  the shares and  the entity jointly acquiring the shares, assets or voting rights have: 

(I) Indian assets: Rs 1,000 crore and above turnover: Rs 3,000 

(II) Total assets in  or outside India: approximately $500 million including at least RUR 500 crore in India. Sales: About $1,500 million  including at least Rs 1,500 crore in India.  the joint assets and acquisition group are: 

(i) Indian assets: about Rs 4,000 turnover: over Rs 12,000 

(ii) Total assets outside India and outside India: approximately $2 billion including at least Rs 500 million in India. Turnover: over $6 billion  including at least Rs 1,500 crore in India. 

(B) Merger- In the case of a merger or merger, the legal entity remaining  after the merger or the legal entity created after the merger must have:

(i) Indian assets: approximately Rs 1,000 crore turnover: approximately Rs 3,000,444

In addition, Section 6 of the Act deals with prescription provisions for combinations. This stipulates that the Commission shall be obliged to notify the Commission of the details of  the merger, along with the prescribed fee, within 30 days of the board’s acquisition  of the merger or transaction proposal or the signing of  the approval document.

(ii) For mergers, it is valid to request 210 days after the notice to the Commission or the date on which the order was placed with reference to this notice, whichever comes first. However, there are exceptions in favour of  financial institutions. 

(iii) Working capital for foreign institutional investors, banks, or  loan  or  investment contracts. 

Judicial Precedents 

MCX Stock Exchange Ltd. Vs National Stock Exchange of India Ltd., DotEx International Ltd. and Omnesys Technologies Pvt. Ltd.. Competition Commision of India[10]

This suit was commenced based on information filed by MCX Stock Exchange Ltd. (MCX-SX) on November 16, 2009. On March 30, 2010, the Commission issued an order under Section 26(l) stating its belief that there is a prima facie case and directing the Director General to conduct an investigation. A further investigation was conducted in line with the requirements of the Competition Act of 2002 and the applicable regulations thereunder. Both the MCX-SX and the National Stock Exchange (N SE), as well as other parties, were given the opportunity to review all relevant documents and make representations to the Commission, both in writing and orally. Following the completion of the whole procedure, the Commission issued a majority ruling finding violations of Sections 4(2)(a)(ii), 4(2)(b)(i) & (ii), 4(2)(c), 4(2)(d), and 4(2)(e) of the Competition Act, 2002. (the Act). It should be emphasised that, in accordance with the majority opinion, a show cause notice was sent to NSE for breach of the Act’s requirements, seeking its response before making a determination on penalties/remedies.

Shri Shamsher Kataria vs Honda Siel Cars India Ltd. & Ors[11]

Appellant filed an information against Volkswagen India, Honda India, and Fiat India for violating Sections 3(4) and 4 of the Competition Act, 2002, as Original Equipment Manufacturers (hereinafter referred to as “OEMs”) entered into agreements with Original Equipment Suppliers (hereinafter referred to as “OESs”) and authorised dealers, imposing unfair prices on the sale of auto spare parts and restricting the free availability of genuine auto spare parts. CCI has issued a significant decision on automobile auxiliary items and services in this instance.

M/S Voltas Limited, Bombay vs Union Of India & Ors[12]

An order of adjudication was issued against the petitioner under the terms of the Central Excise Act, 1944, resulting in a demand for Rs. 81,68,304.00 in tax and Rs. 35 lacs in fine, with a penalty of Rs. 35,04,000.00. The petitioner requested a remission of the pre-deposit and a stay of recovery. On February 14, 1997, the Tribunal issued an order under Section 35-F of the Act directing that Rs. 50 lacs be deposited within three months and that the collection of the rest be suspended pending the outcome of the appeal. The same was contested in court. The Supreme Court ruled that, given the basic description of RTPs in Section 2 (o). Other procedures besides those described in Section 33 (1) might be subjected to Rule of Reason analysis.

CONCLUSION

The enactment of the 2002 Competition Law could be a step  by the government to deal with  changing economic scenarios. Matches with changes in the  economic mindset of liberalization, privatization and globalization. It shows the country’s willingness  to move from a controlled economy to a free economic system, but with proper control and control measures. The law not only focuses on the regulatory part, but  also adopts the concept of “advocacy” to promote competition and raise awareness. As a social mission of the committee. The Commission has occasionally made itself feel in the market  by imposing heavy penalties on companies involved in anti-competitive practices. The ultimate benefit of such measures lies with the buyer, who currently enjoys the good side of healthy competition in the market and is given the opportunity to choose the budget that best suits him. However, there are still some questions that  the government needs to consider. In addition, by the Commission itself to make India’s competitive system more practical. As a late entry, Indian competition law had the advantage of adopting selected features of  competition law from other countries. However, according to experts, Indian law misses some important aspects of competition law that may be included in existing law. For example, settlements and settlement clauses, such as those available in other countries, make the regulatory and arbitrage process faster and more practical, but India has chosen to oppose such measures. This is one  of the reasons for the delay in getting judgments. Another disadvantage that has recently emerged is  the ambiguity within the Commission’s authority. Many proceedings pending before the Court of Competitive Appeals will be revoked because the  Commission did not respect the principles of natural justice or  made other procedural errors. Increasing backlog of cases thanks to staff crunch is another concern that`s needed to be dealt by the government Another area where the Commission has to re think is that the role of the competition laws within the overlap between belongings laws and competition laws. Such matters must be preoccupied for serious consideration by the concerned authorities to attain the required objectives with which the Competition Act was enacted.


[1] Adam Smith.

[2] Section 3 of  The Competition Act, 2002.

[3] Section 4 of  The Competition Act, 2002.

[4] Section 2(h) of  The Competition Act, 2002.

[5] Section 2(i) of  The Competition Act, 2002.

[6] Section 2(r) of  The Competition Act, 2002.

[7] Section 2(b) of  The Competition Act, 2002.

[8] Section 3(4) of  The Competition Act, 2002.

[9] Section 5 of  The Competition Act, 2002.

[10] 2011 CompLR 0129 (CCI).

[11] (2019) PL (Comp. L) June 77, June 6, 2019.

[12] 1995 AIR 1881, 1995 SCC Sulp. (2) 498.

Published by meghachaturvedi

Associate Partner, H.K. Law Offices

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