Competition Law in India

Competition Law in India

Competition Law in India

India’s foray into free-market liberalization and its transition from a “command and control” based regime to that of a free economy paved the way for the annulling of the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act), which restricted the growth of monopolies in the market. India now boasts of a contemporary competition law which is on par with established competition principles of the world. This transformation was initiated with the launch of the Competition Act in the year 2002. The Act is now known as the Competition (Amendment) Act, 2007, thanks to the amendments enacted during that year. This article provides an overview of the competition law in India.

Why Encourage Competition?

The Indian economy is consistently on the rise, albeit with a few setbacks which are a part and parcel of every economy. This economic growth is triggered by competition, as the vigor to better the competitor plays a catalytic role in unlocking the potential of growth in vital areas of the economy. A competitive yet healthy environment facilitates fair competition in the market, thereby not only propelling the national economy but the global financial system as well.

Objectives of the Act

The Competition Act is established in view of the following objectives:

  • To prevent practices that are detrimental to competition.
  • To promote and sustain competition in the markets.
  • To safeguard the interests of the consumers.
  • To ensure freedom of trade carried out by other participants.

The Establishment of a Commission and Tribunal

The Competition Commission of India (CCI) was established so as to prohibit anti-competitive agreements and abuse of dominant positions by enterprises. Moreover, the establishment aims to regulate combinations such as mergers, amalgamations or acquisitions; courtesy of a process that includes inquiry and investigation.  The commission is constituted of a Chairman and other members, whose total strength could be a minimum of two and a maximum of six. Such members are appointed by the Central Government.

The amendment of the Competition Act in 2017 led to the creation of the Competition Appellate Tribunal (COMPAT). The entity was established to adjudicate appeals against the orders of the CCI and to determine the compensation claims arising out of the commission. The Tribunal isn’t existent now, thanks to the changes brought forth into Section 401 of the Companies Act, 2013. Its powers are now vested with the National Company Law Appellate Tribunal (NCLAT), which comprises of a chairperson and three judicial members.

Responsibilities of the Commission

The Commission is empowered to:

  • Eliminate practices which are detrimental to competition, promote and sustain competition, safeguard the interest of the consumers and ensure freedom of trade by other participants.
  • Inquire into matters of concern.
  • Issuance of interim orders in case of anti-competitive agreements and abuse of dominant position, which would temporarily restrict any party from pursuing such an Act.
  • Competition Advocacy i.e.; to provide a clearer depiction of the provision, the Central or State Government may make a reference to the commission while formulating any policy on competition or other relevant affairs. The reference may state the opinion on the possible effect of such policy on Competition, though the opinion of the Commission isn’t binding on the Central Government.

The Amendments in Brief

The Competition Act, which crept into the framework of the Indian constitution in 2003, was amended in 2007 on the backdrop of economic developments and liberalization; prompting the Indian fraternity to allow both international and domestic competition into its market. The amendment resulted in the following:

  • The CCI was designated as a regulator for the prevention and regulation of anti-competitive practices in the country as per the discretions of the Act.
  • The CCI, as was announced then, must be intimated through a notice in the event of any merger or combination within a span of 30 days. Penal consequences have been prescribed for failure in issuing the notice.
  • A Competition Appellate Tribunal was established, but the entity ceased to exist in due course of time.

Note: The Act was amended again in 2009 vide the Competition (Amendment) Act, 2009. The amendment resulted in the transfer of cases from the Monopolies and Restrictive Trade Practices Commission to the Competition Appellate Tribunal and National Consumer Protection. In the absence of the Tribunal, the affairs are now co-managed by NCLAT, in association with National Consumer Protection.

Elements of Composition Law

Competition law consists of the following major elements:

  1. Anti-competitive Agreements
  2. Abuse of Dominance
  3. Merger, amalgamations and acquisitions control
  4. Competition Advocacy

Anti-competitive Agreements

Anti-competitive agreements are contractual obligations that restrict competition. The provisions pertaining to the same are provided in Section 3 of the Competition Act, 2002. The Act prohibits any agreement connected with production, supply, distribution, storage, and acquisition or control of goods or services as it may cause an appreciable adverse effect on the competitive affairs of India.

As per Section 3(2) of the Companies Act, 2002, any anti-competitive agreement within the meaning of section 3(1) is void. The entire agreement is deemed void on the existence of anti-competitive clauses, which has an appreciable adverse effect on the competition.

Here’s a list of stipulations stated under this provision:

  • No enterprise; association of enterprises; person or association of persons are allowed to enter into any agreement associated with the production, supply, distribution, storage, acquisition or control of goods/provision/services as it may potentially cause an appreciable adverse effect of competition within India. Any agreement that contravenes these provisions shall be declared as void.
  • Any agreement between enterprises or associations of enterprises; or persons or association of persons; or between any person and enterprise.
  • Any agreements amongst enterprises or persons at various stages or levels of production chain in different markets connected with production, supply, distribution, storage, sale or price of, or trade in goods or provision of services.

Abuse of Dominant Position

Dominant position, as specified in the Act, is a position of strength enjoyed by an enterprise in the relevant Indian market. It facilitates:

  • The independent conduct of operations of competitive forces in the relevant market.
  • The influencing of competitors, consumers or relevant market in its favor.

No enterprises or groups are permitted to abuse their dominant position. Section 4(2) of the Act specifies the following Acts as an abuse of a dominant position:

  • Direct or indirect imposition of unfair or discriminatory conditions or price in the sale and procurement of goods or services.
  • Curtailment of the production of goods or survives, or that of technical or scientific development pertaining to the goods or service.
  • Involvement in a practice that results in the denial of market access.
  • Drawing conclusions to contracts based on acceptance by other parties of supplementary obligations which is not associated with the subject of such contact.
  • Utilization of the dominant position in one relevant market to either enter into or protect another relevant market.

The powers of determining the eligibility of any enterprise or group to enjoy a dominant position is vested with the Competition Commission of India (CCI). It may be noted that the mere existence of dominance must not be categorized as a dominant position unless the dominance is abused.

Merger, Amalgamation and Acquisition Control

Section 6 of the Companies Act, 2002, prohibits a person or enterprise from entering into a combination that could result in an appreciable adverse effect on competition within the relevant Indian market. On the other hand, if any person or an entire enterprise desires an entry into any combination, a notice requesting the same shall be addressed to the Competition Commission of India. The notice specified in the details must include the details of the proposed combination. The form must be submitted with the prescribed fee within 30 days of the approval of the proposal pertaining to merger or amalgamation or execution of any agreement or other documents required for acquisition purposes.

Again, the CCII is the body that is empowered to determine whether the disclosure made under section 6(2) of the Act is appropriate or if the combination may potentially have an appreciable adverse effect on the competitive affairs of India.

Competition Advocacy

Competition advocacy forms an integral part of the Competition Law. The provision facilitates the Central Government/State Government to avail the opinion of the CCI on the potential implications of the policy on competition or other affairs. For this purpose, the concerned governments may make a reference to the CCI, upon the receipt of which the latter will issue its opinion within 60 days. The government may then formulate a policy which it considers to be appropriate.

The Act also entitles the CCI to adopt suitable measures for the promotion of competition advocacy. Moreover, it is aimed at creating awareness and rendering training of competitive issues.

Competition Law and Competition Policy

Competition law is a subset of the composition policy. The latter consists of competition laws that prohibit anti-competitive conduct by business and special regulatory laws which are meant for analyzing the scenarios of market failure.

The Factor of Confidentiality

The CCI should maintain its confidentiality over the information received by it, considering that it is commercially sensitive and its disclosure may hamper the efficient performance of the business. As stated in Section 57 of the Act, no information pertaining to any enterprise can be disclosed without obtaining a written consent from the enterprise, except on certain specified occasions.

Post by Sreeram Viswanath

IndiaFilings is India's largest online compliance services platform dedicated to helping people start and grow their business, at an affordable cost. We were started in 2014 with the mission of making it easier for Entrepreneurs to start their business. We have since helped start and operate tens of thousands of businesses by offering a range of business services. Our aim is to help the entrepreneur on the legal and regulatory requirements, and be a partner throughout the business lifecycle, offering support at every stage to ensure the business remains compliant and continually growing.