Competition law

Competition law is a law that promotes or seeks to maintain market competition by

regulating anti-competitive conduct by companies.

Competition law is implemented through public and private enforcement. Competition law is
known as anti-trust law in the United States, and as anti-monopoly law in China and Russia

Competition is a situation in market, in which sellers independently strive for buyer’s

patronage to achieve business objectives. Competition offers wide array of choices to
consumers at reasonable prices, stimulates innovation and productivity, and leads to optimum
allocation of resources.

Elements of Competition Law

Competition law, or antitrust law, has three main elements

There are three major elements of a competition law;

1. Anti – competitive agreements;

2. Abuse of dominance;
3. Merger, amalgamations and acquisitions control.

Substance and practice of competition law varies from jurisdiction to jurisdiction. Protecting
the interests of consumers and ensuring that entrepreneurs have an opportunity to compete in
the market economy are often treated as important objectives.
The Need of Competition Law

In the wake of liberalization and privatization that was triggered in India in early nineties, a
realization gathered momentum that the existing Monopolistic and Restrictive Trade
Practices Act, 1969 (“MRTP Act”) was not equipped adequately enough to tackle the
competition aspect of the Indian economy.

With starting of the globalization process, Indian enterprises started facing the heat of
competition from domestic players as well as from global giants, which called for level
playing field and investor-friendly environment.

Hence, need arose with regard to competition laws to shift the focus from curbing
monopolies to encouraging companies to invest and grow, thereby promoting competition
while preventing any abuse of market power.

The Monopolies and Restrictive Trade Practices Act, 1969 [MRTP Act] repealed and was
replaced by the Competition Act, 2002,

Evolution and Development of Competition Law in India

In India the first competition law was enacted in 1969 i.e. Monopolies and Restrictive Trade
Practices Act, 1969 ['MRTP Act, 1969']. The Monopolies and Restrictive Trade Practices
Bill was introduced in the Parliament in the year 1967 and the same was referred to the Joint
Select Committee. The MRTP Act, 1969 came into force, with effect from, 1 June, 1970.

The enactment of MRTP Act, 1969 was based on the socio – economic philosophy enshrined
in the Directive Principles of State Policy contained in the Constitution of India. The MRTP
Act, 1969 underwent amendments in the 1974, 1980, 1982, 1984, 1986, 1988 and 1991.
The amendments introduced in the year 1982 and 1984 were based on the recommendations
of the Sachar Committee, which was constituted by the Govt. of India under the
Chairmanship of Justice Rajinder Sachar in the year 1977.

The Sachar Committee pointed out that advertisements and sales promotions having become
well established modes of modern business techniques, representations through such
advertisements to the consumer should not become deceptive.

The Committee also noted that fictitious bargain was another common form of deception and
many devices were used to lure buyers into believing that they were getting something for
nothing or at a nominal value for their money.

The Committee recommended that an obligation is to be cast on the seller to speak the truth
when he advertises and also to avoid half truth, the purpose being preventing false or
misleading advertisements.

The Finance Minister in its budget speech in February, 1999 said –

"The MRTP Act has become obsolete in certain areas in the light of international
economic developments relating to competition laws. The Government has decided to
appoint a committee to examine this range of issues and propose a modern competition law
suitable for our conditions."

In October 1999, the Government of India constituted a High Level Committee under the
Chairmanship of Mr. SVS Raghavan ['Raghavan Committee'] to advise a modern
competition law for the country in line with international developments and to suggest
legislative framework, which may entail a new law or suitable amendments in the MRTP Act,
1969.
The Raghavan Committee presented its report to the Government in May 2000. On the basis
of the recommendations of the Raghavan Committee, a draft competition law was prepared
and presented in November 2000 to the Government and the Competition Bill was introduced
in the Parliament. After considering the recommendations of the Standing Committee, the
Parliament passed December 2002 the Competition Act, 2002.

The Monopolies and Restrictive Trade Practices Act, 1969 [MRTP Act] repealed and was
replaced by the Competition Act, 2002, with effect from 1 September, 2009.

The Competition Act, 2002 was enacted to provide for the establishment of a Commission
to prevent practices having adverse effect on competition, and to promote and sustain
competition in the business environment and to protect the interest of consumers and also to
ensure freedom of trade carried on by other participants in markets in India.

Introduction of the Act was a key step towards facing competition. The Competition Act,
2002 is not intended to prohibit competition in the market. The legislation prohibits anti-
competitive agreements, abuse of dominant position and regulates mergers, amalgamations
and acquisitions.

The Competition Act, 2002 in its preamble states the following objectives: ·

 Prevent practices having adverse effect on competition. ·

 Promote and sustain competition in the markets. ·

 Protect the interests of consumers.

 Ensure freedom of trade carried on by other participants in markets, in India

The Act was subsequently amended by the Competition Amendment Act, 2007 and
Competition Amendment Act, 2009. The provisions of the Competition Act relating to anti-
competitive agreements and abuse of dominant position were notified on 20May, 2009.
The MRTP Act: Predecessor of the Competition Act, 2002

The Monopolies & Restrictive Trade Practices Act (MRTP) 1969 came into force in June
1970. The Act has three main objectives;

 to control and regulate concentration of economic power;

 to control monopolies and monopolistic trade practices

 to prohibit restrictive trade practices.

Four types of undertakings come under the purview of MRTP Act,

 An undertaking which has gross assets of Rs. 20 crores and above,

 Inter-connected undertakings which together have assets of Rs. 20 crores and above,

 A dominant undertaking which has assets of Rs. 1 crore and above.

MRTP act is not applicable to the following entities

 Government Company and undertaking owned by Government.

 Company established by a Central or State Act.

 Trade Unions

 Companies which have been taken over by the central Government.

 Companies owned by registered Cooperative Societies.

 Any financial institution.

The MRTP Act is not in force in India currently as it was repealed and was replaced by
Competition Act 2002 with effect from September 1, 2009. The MRTP commission was
replaced by Competition Commission of India.

MRTP Act has a number of loopholes and the Competition Act, covers all the areas which
the MRTP Act lags. The MRTP Commission plays only advisory role. On the other side,
Competition Commission has a number of powers which promotes suo moto and levies
punishment to those firms which affects the market in a negative way.
Difference Between MRTP ACT & Competition Act

MRTP Competition ACT

MRTP Act, is the first competition law made Competition Act, is implemented to promote
in India, which covers rules and regulations and keep up competition in the economy and
relating to unfair trade practices. ensure freedom of business

The objective was to curb monopolies Aims to promote Competition

Size based approach Effect based approach

Competition Concepts not expressly defined Competition concepts expressly defined

Reformatory Punitive

Determined by firm's size Determined by firm's structure.

Focuses Consumer interest at large Public at large

No advocacy rule Provides for advocacy

Rule of law Approach Rule of reason Approach

Required to be registered It does not specify any provision relating to

registration of agreement.
Sherman Antitrust Act

Sherman Antitrust Act, first legislation enacted by the United States Congress (1890) to curb
concentrations of power that interfere with trade and reduce economic competition. It was
named for U.S. Senator John Sherman of Ohio, who was an expert on the regulation of
commerce.

The Sherman Antitrust Act was based on the constitutional power of Congress to regulate
interstate commerce. A trust was an arrangement by which stockholders in several companies
transferred their shares to a single set of trustees. In exchange, the stockholders received a
certificate entitling them to a specified share of the consolidated earnings of the jointly
managed companies.

The federal statute, prohibit individuals or business entities from entering into contracts,
combinations or conspiracies that restrain interstate or foreign trade.

The Sherman Act authorized the Federal Government to institute proceedings against trusts in
order to dissolve them.

The Sherman Act is enforced by the Department of Justice. Private individuals and state
attorneys general on behalf of their state residents may also bring actions for damages.

Any combination “in the form of trust or otherwise that was in restraint of trade or
commerce among the several states, or with foreign nations” was declared illegal. Persons
forming such combinations were subject to fines of $5,000 and a year in jail.

Individuals and companies suffering losses because of trusts were permitted to sue in Federal
court for triple damages.

The Sherman Act was designed to restore competition but was loosely worded and failed to
define such critical terms as “trust,” “combination,” “conspiracy,” and “monopoly.”

Five years later, the Supreme Court dismantled the Sherman Act in United States v. E. C.
Knight Company (1895).
The Recommendation Given by Raghavan Committee on
Competition Policy

In view of rapid globalisation the government embarked upon a policy of promoting

competition and framed a competition policy in 2000 following the recommendations of
Raghavan Committee in October 1999.

The Salient points of their recommendations are:

 Setting up of competition commission and winding up of MRTP commission.

 Government monopolies, foreign companies will be covered by competition law.

 Government should make a specific rule on mergers above a threshold investment

limit and predatory pricing as an abuse if any dominant undertaking engages in it.

 Competition law should cover all kinds of consumers for the purpose of protection of
interest.

 Small scale sector should not enjoy any protection or reservation if the products of
any SSI fall in the OGL category, for the purpose of imports.

 Board for Industrial and Financial Reconstruction ( BIFR) should be closed-

 Urban Land Ceiling Act, Industrial Dispute Act should be repealed.

 All pending cases of MRTPC should be transferred to competition commission of

India.

 The new competition law and competition commission of India is however lacuna in
many respects.