Need for Competition Act

in an era of globalization where the world at

large is a single platform for carrying out
trade and commerce

Division E | Group 5

E045 Aurindum Mukherjee

E047 Vineet Nayak
E049 Harsh Patel
E051 Nitish Rai
E053 Subramanian S
E057 Sameer Shah
E059 Mridul Sharma
E061 Navodita Singh
E065 Sumit Tripathi
Agenda
• MRTP Act – The predecessor

• Key words

• Competition Act
Anti-competitive agreements
Abuse of dominance
Regulation of combinations
Competition Commission of India
Competition Advocacy

• International comparison
 MRTP Act – The Predecessor

The primary objectives of the Act were listed down in the Preamble
as follows:
i) Regulate the concentration of economic power to the common
detriment
ii) Control monopolies and monopolistic trade practices
iii) Prohibit restrictive trade practices, and
iv) Regulate unfair trade practices
 MRTP Act
Restrictive Trade Practises:
1. Prevents, distorts or restricts competition
2. Obstructs the flow of capital or resources into stream of production
3. Manipulation of prices or conditions

Monopolistic Trade Practises:

1. Maintaining prices at an unreasonable level
2. Unreasonably preventing or lessening competition
3. Limiting technical development or Capital investment
4. Deteriorating the quality of goods

Unfair Trade Practises:

1. False representation of goods of a particular quality, standard, quantity
2. Falsely represent rebuilt, second hand goods as new
3. Representation of goods having performance characteristics, uses and benefits which
they do not have
4. Makes a misleading representation concerning the need for any good or service
Shortcomings of MRTP Act

Anti - Stringent
welfare Provisions

Ambiguity in International
law norms
Introduction to Competition Act 2002
• Competition is a situation in market, in which sellers
independently strive for buyer’s patronage to achieve
business objectives

• Need: New economic policy required an update to existing

MRTP Act

• Objectives
 To check anti-competitive practices
 To prohibit abuse of dominance
 Regulations of combinations
 To provide for establishment of CCI
Key words

Consumer Enterprise Service

Price Agreement Acquisition

Cartel
Anti-competitive agreements
• Any agreement which causes or is likely to cause an
appreciable adverse effect on competition (AAEC)

• Agreement with respect to production, supply, distribution,

storage, acquisition or control of goods or provision of
services

• Factors for determining AAEC:

 creation of barriers to new entrants

 driving existing competitors out of the market

 foreclosure of competition by hindering entry into the market

Anti-competitive agreements
• The Act does not categorize agreements into horizontal &
vertical
• Types of agreements:

 Horizontal agreements

 Vertical agreements
Anti-competitive agreements
• Horizontal agreements are between entities at same level of
market chain and as per section 3(3) which:

 directly or indirectly determines purchase or sale prices

 limits or controls production, supply, markets, technical development

 shares the market or source of production or provision of services

 directly or indirectly results in bid rigging or collusive bidding

• Cartels – pernicious type of horizontal agreement

• Considered to be illegal and anti-competitive ab-initio

Anti-competitive agreements
• Vertical agreements are between entities at different levels of
market chain and as per section 3(4) include:

 tie-in arrangement
 exclusive supply agreement
 exclusive distribution agreement
 refusal to deal
 resale price maintenance

• Subject to Rule of Reason for determination of anti-

competitiveness
Case: Cement Cartel
• Builder’s Association of India v/s CMA & 11 cement
companies

• Parameters Investigated:

 Price parallelism
 Limited production
 Production parallelism
 Dispatch parallelism
 High profit margins

• Verdict  Fine of Rs. 6700 crores

 Prohibition of Abuse of Dominant Position
There are 4 important steps to determine abuse of Dominant Position:

1) Relevant Market
2) Determination of dominant position
3) Assessment of Abuse
4) Penalties and Sanctions

Relevant Market
“Determination of relevant market defines the scope within which the
position of an enterprise is to be tested”

Relevant Market defined in terms of:

1) Product Market
2) Geographic Market
 Determination of Dominant Position
• Section 19(4) lists various factors that are to be considered while
determining if a firm enjoys dominant position.

• Market share one of most important parameter but it is not so in all

cases thus to determine if a firm is in dominant it has to be totality of all
facts.
Explanation: “Mr. Rama Kant and Hiranandani hospital Mumbai, 2015”

Assessment of Abuse
(1) Directly or indirectly, imposes unfair or discriminatory—

• Condition in purchase or sale of goods or services; or

• Price in purchase or sale (including predatory price) of goods or service

 Assessment of Abuse
(2) Limits or restricts—
• Production of goods or provision of services or market therefor; or
• Technical or scientific development relating to goods or services to the
prejudice of consumers.

(3) Indulges in practice or practices resulting in denial of market access.

(4) Makes conclusion of contracts subject to acceptance by other

parties of supplementary obligations which, by their nature or according
to commercial usage, have no connection with the subject of such
contracts.

(5) Uses its dominant position in one relevant market to enter into, or
protect, other relevant market.
 Assessment of Abuse

Explanation:
(1) Case against DLF by Pankaj Agarwal
(2) Predatory Pricing
(3) Shri Shamsher Kataria v Seil Honda

Penalties and Sanctions

To an enterprise that is found to be guilty of Abuse of dominant position, the
CCI can punish as follow:

• Direct the enterprise to discontinue such acts that amounted to abuse

• Impose penalties of up to ten percent of the average of the turnover for

the last three preceding financial years
 Case: Dhanraj Pillay & Others v.
M/S Hockey India
Important Terms:
• HI
• FIH
• IOA
• AHF
• IHF
• Nimbus Sport

Case against HI: Informant filed a case against HI, accusing the later to be
involved in abuse of dominant position in the relevant market.
Argument by HI:

• Questioned the jurisdiction of the commission

• Also HI argued that for any International sport a pyramid like
structure is always put in place, with single national association,
operating under single continental federation and all these under
single worldwide association.

Commissions Analysis:
• Analyzed the Jurisdiction
• Accepted that HI has dominant position
• Analyzed the Pyramid structure and accepted the argument
Final Decision:

• Commission exonerated HI from all allegations of entering into anti-

competitive agreements and abuse of dominant position.
• But it accepted that economics and regulatory activity of HI does have
conflict of interest and hence directed HI to put in place a internal control
system.
 Regulation of combinations
• Combination may be:
 an acquisition of control, shares, voting rights or assets,
 acquisition of control by a person over an enterprise or
 mergers and amalgamations between or amongst competitive
enterprises

• Not all combinations are scrutinized by the commission only ones where total
assets or turnover of the combined entity exceed the thresholds.

• And all such combinations will have to mandatorily notified and approved by
the commission.

If a combination causes or is likely to cause an appreciable adverse effect on

competition within the relevant market in India, it is prohibited and can be
scrutinized and declared void by the commission.
Current Thresholds
When the acquiring party is an individual entity
Presence Assets Turnover
Parties have revenue and 2000 Cr INR 6000 Cr INR
turnover only within India.
Either party has assets or Total Min. India Total Min. India
turnover outside India. component component
1billion USD 1000 Cr INR 3billion USD 3000 Cr INR
When the acquiring party is a group
Presence Assets Turnover

Parties have revenue and 8000 Cr INR 24000Cr INR

turnover only within India.
Either party has assets or Total Min. India Total Min. India
turnover outside India. component component
4billion USD 1000 Cr INR 12billion USD 3000 Cr INR
Cases where notifications is not needed –
Schedule 1
• Acquires less than 25% of shares/voting rights.
• If the acquirer already holds 25% shares/voting rights it should not
cross 50% as a result of the acquisition.
• If the acquirer already holds 50% or more rights, it need not be
notified except in the cases where the acquisition leads to
ownership changing from joint to sole control.
• Assets which are acquired in the normal course of business, such
as, current assets.
• A combination taking place entirely outside India with insignificant
local impact.
Notification of Combination
• Pre-combination notice 30 days prior to the actual merger or
amalgamation.
• In absence of notice
• The commission may investigate the combination within one
year of the combination coming into effect.
• CCI can order demerger of the entity.
• Impose fine up to 1% of the total turnover.
• The commission may take up to 210 days to give approval, post
which the notice is deemed to be approved.

• An appeal may be filed to Competition Appellate Tribunal

(COMPAT) within 60 days from the receipt of the order from the
commission.
Case: DFPCL acquiring shares of MCFL
• Deepak Fertilizers and Petrochemicals Ltd. owns a subsidiary by
the name SCM Soilfert. On July 3, 2013 SCM purchased shares of
Mangalore Chemicals and Fertilizers Limited (MCFL) which
amounted to 24.46% of the shares.
• On 23rd April, 2014 additional equity shares worth 0.8% of MCFL
were purchased by SCM, taking the total holding to over 25%.
• The CCI was informed of this acquisition after 29 days.
• DFPCL argued that the share transaction had not yet been
completed.]
• CCI imposed a fine of INR 2 crores on DFPCL, this decision was
upheld by the COMPAT.
MRTP Act vs Competition Act
MRTP Act Competition Act

Based on pre – reforms scenario Based on post – reforms scenario

Competition offences implicit and not well - Competition offences explicit and well -
defined defined

Discourages dominance Discourages abuse of dominance

No combination regulations Combinations regulation done after a

threshold limit

Very little administrative and financial Relatively more autonomy for Competition
autonomy for MRTP commission commission
CCI
• Established under under section 7 of the Act by a Government
Notification dated 14th October, 2003

• Composition
 A Chairperson
 Not less than 2 and more than 6 other members appointed by
the Central Government

• Duties
 eliminate practices having adverse effect on competition
 promote and sustain competition
 protect the interest of consumers
 ensure freedom of trade
COMPAT
• Quasi-judicial body constituted under the provisions of the
Competition Act, 2002, as amended by Competition (Amendment)
Act, 2007

• Objective
 hear and dispose of appeals against orders, directions passed
by the Commission
 adjudicate on claim for compensation that may arise from the
findings of the Commission

• Composition
 A Chairperson &
 not more than 2 members
The Competition (Amendment) Act, 2007
Competition Commission of India (CCI)
• CCI may inquire into any agreement that is likely to have an adverse
effect on competition in the country or any enterprise abusing its
dominant position in the market

Competition Appellate Tribunal (CAT)

• CAT can adjudicate on certain decisions made by the CCI. They
include the decision that an agreement is not causing adverse effect
on competition or an enterprise is not abusing its dominant position
and the decision on whether a combination is having an adverse effect
on competition

• Selection Committee headed by the Chief Justice of India would

suggest a panel of names to the central government for appointing
members of the CCI and CAT
Issues with 2007 Amendment Act
• Overlap between mandate of CCI and certain sectoral
regulators could lead to turf issues
• CCI does not have the power to give its opinion on
competition related issues
• Act does not lay down the extent of the reduction in penalty
or the basis to evaluate it
• The term "reasonable conditions“ used by enterprises to
protect their intellectual property rights has not been defined
 The Competition (Amendment) Act, 2009
• Replaced the Competition
(Amendment) Ordinance, 2009
• Cases pending with MRTP
Commission were transferred to
Competition Appellate Tribunal
and National Consumer
Commission
• These cases were to be
arbitrated in agreement with the
provisions of the revoked MRTP
Act as if the Act had not been
revoked
Cases handled by CCI and CAT in
2009
• 50 cases from MRTP Commission
on transfer under Sec 66 of
Competition Act, 2002 out of which
7 were referred for investigation
• 32 cases were received under Sec
19 of the Act out of which 17 were
referred for investigation
• CCI closed 7 cases under Sec
26(2) of the Act and 6 reports were
submitted for consideration by DG
Competition Advocacy
Aim
To promote practices which will enhance the market structure in
terms of its competitiveness and without a direct intervention if
Competition Commission of India

Success Factors
• Develop relationship with ministries of Government and
regulatory agencies
• Encourage debate on competition
• Open and transparent to safeguard the integrity of CCI
• Good media relations
Section 49 of Competition Act 2002
The Central Government may ask for Commission’s opinion
(Duration – 60 Days) on possible effect in formulating a
policy on competition

The opinion given shall not be binding upon the Central

Government

Commission may take suitable measures for promotion,

create awareness and give training about competition issues
Statistical data
SI. No. Particulars 2014-15 2015-16
1 No. of alleged anti-trust matters noted by 128 121
the Commission
2 No. of prima facie orders passed in 114 119
respect of alleged anti-trust matters
3 No. of investigations completed by DG 34 32
4 No. of orders [under Sections 26(2), 95 127
26(6) and 27] passed in respect of anti-
trust matters
5 Amount of penalty levied (Rs. crore) 2592 1502
6 Percentage of orders appealed against 30 26.15
(%)
7 No. of combinations notices received by 91 113
the commission
7 No. of combinations approved 84 107
8 Average no. of days taken to dispose of a 24.80 26.40
combination notice
9 No. of advocacy programmes 49 75
 Comparison with EU
• Structure for the Indian competition law is similar to the EU
framework
• Significant difference lies in the quality of enforcement

EU INDIA
Commission to mandatorily consult the Advisory Commission can appoint experts and professionals
Committee for the proper functioning of the commission

Acknowledgment of Commitments and decision No such mechanism exists in the Competition Act
making on the Commitments

Power to inspect the undertakings and the Commission can only order the Director General to
associations of the undertakings communicate

Provision of Periodic Penalty to stop infringement No such provision of periodic penalty

of competition rules
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