ASSIGNMENT ON

LEGAL ASPECTS

Topic :- Competition Act

SUBMITTED TO:

Mrs. Kshitija Sharma Faculty Member (RICM Chd)

SUBMITTED BY PGDM (2009-11)

-:

Vishvendra Chaudhary Roll No-927

REGIONAL INSTITUTE OF COOPERATIVE MANAGEMENT SECTOR- 32-C, CHANDIGARH

Competition Act
The Competition Act, 2002 was passed by the Parliament in the year 2002, to which the President accorded assent in January, 2003. It was subsequently amended by the Competition (Amendment) Act, 2007. In accordance with the provisions of the Amendment Act, the Competition Commission of India and the Competition Appellate Tribunal have been established. The Competition Commission of India is now fully functional with a Chairperson and six members. The provisions of the Competition Act relating to anti-competitive agreements and abuse of dominant position were notified on May 20, 2009.

Short , extent and commencement:1. This act may be called the Competition Act 2002.

2. It extends to the whole of India except the State of Jammu and Kashmir. 3. It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint: provided that different dates may be appointed for different provisions of this Act and any reference in any such provision to the commencement of this Act shall be construed as a reference to the coming into force of that provision.

Definitions.-In this Act, unless the context otherwise requires :(a) "Acquisition" means, directly or indirectly, acquiring or agreeing to acquire-

(i) (ii)
(b)

Shares, voting rights or assets of any enterprise; or Control over management or control over assets of any enterprise;

"Agreement" includes any arrangement or understanding or action in concert,(i) Whether or not, such arrangement, understanding or action is formal or in writing; or

(ii) Whether or not such arrangement, understanding or action is

intended to be enforceable by legal proceedings; (c) "Cartel" includes an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services; "Chairperson" means the Chairperson of the Commission appointed under sub-section (1) of section 8; "Commission" means the Competition Commission of India established under sub-section (1) of section 7; "Consumer" means any person who(i) Buys any goods for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any user of such goods other than the person who buys such goods for consideration paid or pro ised or partly paid or partly promised, or under any system of deferred payment when such use is made with the approval of such person, whether such purchase of goods is for resale or for any commercial purpose or for personal use; (ii)Hires or avails of any services for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any beneficiary of such services other than the person who hires or avails of the services for consideration paid or promised, or partly paid and partly promised, or under any system of deferred payment, when such services are availed of with the approval of the first-mentioned person whether such hiring or availing of services i for any commercial purpose or for personal use;

(d) (e) (f)

(g)

"Director General" means the Director General appointed under sub-section (1) of section 16 and includes any Additional, Joint, Deputy or Assistant Directors General appointed under that section;

(h)

"Enterprise" means a person or a department of the Government, who or which is, or has been, engaged in any activity, relating to the production,

storage, supply, distribution, acquisition or control of articles or goods, or the provision of services of any kind, or in investment, or in the business of acquiring, holding, underwriting or dealing with shares, debentures or other securities of any other body corporate, either directly or through one or more of its units or is located at the same place where the enterprise is located or at a different place or at different places, but does not include any activity of the Government relatable to the sovereign functions of the Government divisions or subsidiaries, w ether such unit or division or subsidiary nt including all activities carried on by the departments of the Central Government dealing with atomic energy, currency, defence and space.

Explanation.-For the purposes of this clause,:(a)

(b) (c)

"Activity" includes profession or occupation; "Article" includes a new article and "service" includes a new service; "Unit" or "Division", in relation to an enterprise, includes(i) A plant or factory established for the production, storage, supply, distribution, acquisition or control of any article or goods; (ii) Any branch or office established for the provision of any service;

(i)

"Goods" means goods as defined in the Sale of Goods Act, 1930 (8 of 1930) and includes(A) (B) (C) Products manufactured, processed or mined; Debentures, stocks and shares after allotment; In relation to goods supplied, distributed or controlled in India, goods imported into India;

(j) (k) (l)

"Member" means a Member of the Commission appointed under subsection (1) of section 8 and includes the Chairperson; "Notification" means a notification published in the Official Gazette; "Person" includes(i) (ii) (iii) (iv) (v) An individual; A Hindu undivided family; A company; A firm; An association of persons or a body of individuals, whether incorporated or not, in India or outside India;

(vi) Any corporation established by or under any Central, State or Provincial Act or a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956); (vii) Anybody corporate incorporated by or under the laws of a country outside India; (viii) A co-operative society registered under any law relating to cooperative societies; (ix) A local authority;

Components Of Competition Act

The rubric of the new law, Competition Act, 2002 (Act, for brief) has essentially four compartments: # Anti - Competition Agreements # Abuse of Dominance # Combinations Regulation # Competition Advocacy

Anti Competition Agreements:Firms enter into agreements, which may have the potential of restricting competition. A scan of the competition laws in the world will show that they make a distinction between horizontal and vertical agreements between firms. The former, namely the horizontal agreements are those among competitors and the latter, namely the vertical agreements are those relating to an actual or potential relationship of purchasing or selling to each other. A particularly pernicious type of horizontal agreements is the cartel. Vertical agreements are pernicious, if they are between firms in a position of dominance. Most competition laws view vertical agreements generally more leniently than horizontal agreements, as, prima facie, horizontal agreements are more likely to reduce competition than agreements between firms in a purchaser - seller relationship. An obvious example that comes to mind is an agreement between enterprises dealing in the same product or products. Such horizontal agreements, which include membership of cartels, are presumed to lead to unreasonable restrictions of competition and are therefore presumed to have an appreciable adverse effect on competition. In other words, they are per se illegal. The underlying principle in such presumption of illegality is that the agreements in question have an appreciable anti-competitive effect. Barring the aforesaid four types of agreements, all the others will be subject to the rule of reaso test in the Act.

Abuse Of Dominance :Dominant Position has been appropriately defined in the Act in terms of the position of strength, enjoyed by an enterprise, in the relevant market, in India, which enables it to(i) operate independently of competitive forces prevailing in the relevant market; or (ii) affect its competitors or consumers or the relevant market, in its favour. Section 4 enjoins, No enterprise shall abuse its dominant position. Dominant position is the position of strength enjoyed by an enterprise in the relevant market which enables it to operate independently of competitive forces prevailing in the market or affects its competitors or consumers or the relevant market in its favour. Dominant position is abused when an enterprise imposes unfair or discriminatory conditions in purchase or sale of goods or services or in the price in purchase or sale of goods or services. Again, the philosophy of the Competition Act is reflected in this provision, where it is clarified that a situation of monopoly per se is not against public policy but, rather, the use of the monopoly status such that it operates to the detriment of potential and actual competitors. At this point it is worth mentioning that the Act does not prohibit or restrict enterprises from coming into dominance. There is no control whatsoever to prevent enterprises from coming into or acquiring position of dominance. All that the Act prohibits is the abuse of that dominant position. The Act therefore targets the abuse of dominance and not dominance per se. This is indeed a welcome step, a step towards a truly global and liberal economy.

The Act on Combinations Regulation :The Competition Act also is designed to regulate the operation and activities of combinations, a term, which contemplates acquisitions, mergers or amalgamations. Thus, the operation of the Competition Act is not confined to transactions strictly within the boundaries of India but also such transactions involving entities existing and/or established overseas. Herein again lies the key to understanding the Competition Act. The intent of the legislation is not to prevent the existence of a monopoly across the board. There is a realisation in policy-making circles that in certain industries, the nature of their operations and economies of scale indeed dictate the creation of a monopoly in order to be able to operate and remain viable and profitable. This is in significant contrast to the philosophy, which propelled the operation and application of the MRTP Act, the trigger for which was the existence or impending creation of a monopoly situation in a sector

of industry. The Act has made the pre-notification of combinations voluntary for the parties concerned. However, if the parties to the combination choose not to notify the CCI, as it is not mandatory to notify, they run the risk of a post-combination action by the CCI, if it is discovered subsequently, that the combination has an appreciable adverse effect on competition. There is a rider that the CCI shall not initiate an inquiry into a combination after the expiry of one year from the date on which the combination has taken effect.

Competition Advocacy

:-

In line with the High Level Committee's recommendation, the Act extends the mandate of the Competition Commission of India beyond merely enforcing the law (High Level Committee, 2000). Competition advocacy creates a culture of competition. There are many possible valuable roles for competition advocacy, depending on a country's legal and economic circumstances. The Regulatory Authority under the Act, namely, Competition Commission of India (CCI), in terms of the advocacy provisions in the Act, is enabled to participate in the formulation of the country's economic policies and to participate in the reviewing of laws related to competition at the instance of the Central Government. The Central Government can make a reference to the CCI for its opinion on the possible effect of a policy under formulation or of an existing law related to competition. The Commission will therefore be assuming the role of competition advocate, acting pro-actively to bring about Government policies that lower barriers to entry, that promote deregulation and trade liberalisation and that promote competition in the market place. Perhaps one of the most crucial components of the Competition Act is contained in a single section under the chapter entitledcompetition advocacy.

Competition Policy In The International Context:The international dimension of competition policy, in particular the case for a multilateral agreement on competition (MAC). The relationship between trade and competition policy was one of the four Singapore Issues, which were given that label because they were put on the WTO agenda for study and discussion (not negotiations) at the 1996 Singapore Ministerial Conference. But the issue of international competition policy is actually much older. It figured prominently at an international forum for the first time as early as 1946 in the Havana Charter, which laid the groundwork for an International Trade Organization (ITO). The 1996 Singapore Ministerial resolved to set up working groups on each of the

Singapore issues. The mandate of the Working Group on the Interaction between Trade and Competition Policy (WGTCP) was to study issues raised by Members relating to the interaction between trade and competition policy, including anticompetitive practices in order to identify any areas that may merit further consideration in the WTO framework. Consequently, the relevant paragraphs of the 2001 Doha Ministerial Declaration tried to give a development-friendly slant to the issue. WGTCP discussions during the first few years of its existence were diffused and non-converging. Faced with a lack of consensus on so many issues, the Doha Declaration of the 2001 Ministerial Conference of the WTO limited further discussion at the WGTCP to the issue of hardcore cartels; application of the fundamental WTO principles of non- discrimination, transparency and procedural fairness in competition policy; capacity building in developing countries; and voluntary cooperation between Members.

Can Competition Act Replace MRTP ACT:In view of the policy shift from curbing monopolies to promoting competition, there was a need to repeal the Monopolies and Restrictive Trade Practices Act. Hence, the Competition Law aims at doing away with the rigidly structured MRTP Act. The Competition Law proposed is flexible and behaviour oriented.

Salient Features of New Competition Law

June 28, 2001 (1) The draft Competition Bill, 2001 and Repeal of the Monopolies and Restrictive Trade Practices (MRTP) Act, 1969 which received the approval of the Union Cabinet on June 26, 2001 covers prohibition of anti-competitive agreements, prohibition of abuse of dominance, regulation of combinations , such as acquisitions, mergers and amalgamation of certain size, establishment of Competition Commission of India (CCI) and functions and powers of CCI. (2) The objectives of the Bill are to provide for the establishment of a Commission to prevent practices having adverse effect on competition, to promote and sustain competition in markets in India, to protect the interests of consumers, and to ensure freedom of economic action of the participants in market in India and for matters connected therewith or incidental thereto. (3) The proposed Law will not apply to Government Departments and enterprises performing sovereign functions and policy making aspects of Governmental activities (decision making by Ministries/Departments/Offices of Central Government or State Governments)/ local bodies-like reservation for SSI, preference in procurement from SSI units/PSUs and such similar policies. (4) The proposed Law will also provide for exemption of certain classes of enterprises and international agreements from the applicability of the Act by way of specific notifications. (5) The Law would curb those practices, which would have an appreciable adverse effect on Competition. The proposed Law identifies three such ways in which such practices could occur as under: (6) Anti-competitive Agreements: (Horizontal Agreements, Vertical Agreements) can be inquired into by CCI which could impose a penalty or an amount upto 10 per cent of its average turnover in the last three years for the offence. (7) Abuse of Dominant Position (The criteria for deciding the dominant position are broader than one included in MRTP Act). Enjoying a dominant position will not be a

crime but its abuse will be a crime. (8) Elimination/ reduction of competitors in market achieved through acquisitions, amalgamations or mergers (The proposed Law is not against every acquisition, merger or amalgamation, but it refers only to those acquisitions, mergers and amalgamation, which are of a certain prescribed size-size in terms of (a) assets or (b) turnover. (9) The proposed Law provides for an adjudicating relief machinery by way of establishing the Competition Commission of India (CCI) which would be a QuasiJudicial Body. CCI will have a Chairperson and not less than two and not more than ten other Members, as may be specified by the Central Government.. (10) The CCI will have the following powers: To issue "Cease and Desist" Orders To grant such interim relief as would be necessary in each case To award compensation To impose fines on the guilty To order division of dominant undertaking Power to order de-merger Power to order costs for frivolous complaints. (11) In addition to the adjudication function, the CCI will have the roles of advocacy, investigation, prosecution and merger control. The Statutory Regulatory Authorities can make reference to CCI for advice. (12) The proposed Law provides for the post of Director Genral (and a host of his deputies in various places) to assist the Competition Commission in its inquiries. Unlike in MRTP Act, the Director General will not have powers to initiate investigations suo motu. (13) In view of the policy shift from curbing monopolies to promoting competition, there is a need to repeal the Monopolies and Restrictive Trade Practices Act. Hence, the proposed Competition Law to be brought in, aims at doing away with the rigidly structured MRTP Act. The Competition Law proposed is flexible and behaviour oriented. Other reasons are as follows: MRTP Act is based on the pre-reforms scenario whereas the new Law will be based on the post-reforms scenario. MRTP Act is based on the size as a factor whereas the new Law will be based on the structure as a factor. MRTP Act has 14 per se offences negating the principles of natural justice where the new Law has 4 per se offences, all

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the rest subjected to rule of reason. MRTP Act provides for Registration of agreements as compulsory whereas in the new Law there is no requirement of registration of agreement. Under the new Law, dominance per se is not bad but only the abuse of dominance is considered bad whereas under the MRTP Law, dominance itself is bad. Combination Regulation mentioned in the Bill, ensures that Competition is not reduced . Combinations are not regulated by MRTP Act. MRTP Act has powers only to pass "Cease and Desist" orders and did not have any other powers to prevent or punish, whereas the Competition Law contains punitive provisions. MRTP Act does not vest MRTP Commission to inquire into cartels of foreign origin in a direct manner. The proposed Competition Law seeks to regulate them. The concept of 'Group' under the MRTP Act had wider import and was unworkable whereas the concept has been simplified in the proposed Law. The proposed Law provides for a Competition fund which shall be utilised for promotion of competition advocacy, creating awareness about competition issues and training in accordance with the rules that may be prescribed. Pending cases pertaining to Unfair Trade Practices other than those relating to tie in sales, purchases or cases falling under clause (x) of sub-section (1) of Section 36A , the Monopolies and Restrictive Trade Practices Act, 1969 under the repealed Act shall stand transferred to the National Commission constituted under the Consumer Protection Act, 1986.

Conclusion:The message is loud yet clear that a well planned exhaustive competition compliance programme can be of great benefit to all enterprises irrespective of their size, area of operation, jurisdiction involved, nature of products supplied or services rendered and the same is essential for companies, its directors and the delegate key corporate executives to avoid insurmountable hardships of monetary fines, civil imprisonment, beside loss of hard-earned reputation when the Competition Authorities, the media and others reveal the misdeeds in public. In the changed scenario, India do needs a fresh law for competition and a new regulatory authority, which under this policy is the `Competition Commission of India. The law will serve the purpose only if it is made independently, runs independently and is less expensive.

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