An Outline on Competition Act, 2002

Article submitted by Vahini, SASTRA Deemed to be University.

Abstract:

Competition Act, 2002 has been enacted to replace the MRTP Act,1969. The MRTP Act became obsolete because of the increasing competition. Also, the Act prevented the expansion of companies as government permission to expand their business had to be obtained. A shift from monopoly to a healthy competitive environment was required. The Government of India introduced the bill in 2001. The bill was passed in December, 2002 and received presidential assent on 13th January, 2003

Objectives:

The Act was passed for the establishment of a commission to promote and sustain competition in the business environment. The objectives of the Act, as laid down in the preamble are to provide for the establishment of a commission, promote and sustain the competition, protect the consumer, ensure free movement of trade, eliminate practices that have an adverse effect on the competition, safety and stability of domestic market, prevention of abusive practices and regulate unethical competition in the international trade.

Competition commission of India (CCI) was established on 14th October, 2003. The members of the committee were appointed by the Central government. It regulates the market for preventing anti-competitive practices in the country. A quasi-judicial body called Competition Appellate Tribunal was also established to hear and dispose appeals against any decision of the Competition Commission of India.

Elements of the Act:

The act identifies three ways that can have adverse effect on the competition:

Anti-competitive Agreement: These agreements restrict competition. Any production, supply, distribution etc, which is likely to cause an appreciable adverse effect on competition in India is prohibited by Section 3 of the Act. The term 'Agreement' as defined in section 2(b) of the Act, includes any arrangement or understanding or action in concert, whether it is formal or in writing or whether or not such agreement is enforceable.

The agreement between competitors at the same level is called as Horizontal agreement. When the competitors agree upon a fixed price, the agreement is called Cartel. Another type of anti-competitive agreement is vertical agreement which is between producers and suppliers or between producers and distributors, or in other words, agreement between business entities operating at different levels. Sec 3(3) states that such agreements which would have an appreciable adverse effect on competition, or directly or indirectly determine the sale or purchase price, or limit or control production, supply, markets etc, or directly or indirectly result in bid rigging or collusive bidding.

The agreements falling in section 3(3) of the Act shall be judged by 'shall be presumed rule'. Section 3(4) states that any agreement amongst enterprises at different stages or levels of production, supply, storage, sale of goods or services including exclusive supply agreement, tie-in agreement, resale price maintenance shall be presumed to be anti-competitive if they cause any adverse effect on the competition of India. Any agreements falling in section 3(4) shall be judged by “rules of reason”. Under Section 3(5) Intellectual property rights given due recognition. These agreements shall not restrict rights of any Intellectual Property Right Holder to restrain any infringement or impose conditions which may be necessary to protect his rights. The Act does not restrict any person from exporting goods from India to the extent covered by the agreement exclusively related to the production, supply, distribution or control of goods or provision of services for such export.

Abuse of Dominant Position: Any enterprise or group abusing its dominant position is prohibited by section 4 of the Competition Act. Dominant position refers to any group or enterprise having a position of strength, it enables them to operate independently of competition forces prevailing in the relevant market and affect its competitors in its favour. The ability of the enterprises to raise prices or reduce output independently of its rivals is termed as dominance.

As per Section 2(r),'relevant market' means the market, which may be determined by the Competition Commission of India with reference to the relevant 'product market' or 'relevant geographical market' or with reference to both. Physical characteristics, price of goods and services, preferences of the consumers are to be considered for determining market product. The geographical market is determined by taking in the regulations, restrictions, distribution facilities, transport, consumer preference, national policies. An enterprise shall be in an abuse of dominant position if it, directly or indirectly, imposes discriminatory conditions on the sale or purchase of goods or services, or restricts the production of goods or service, or limits technical development to the prejudice of consumers, or indulges in practices that deny market access, or utilizes its dominant position for entering into other relevant market.

Mergers, Amalgamations and Acquisition Control: It covers acquisition of control, shares, rights and assets, mergers and amalgamations. Section 6, prohibits any enterprise to form combination which will cause an adverse effect on competition within the market, if such combination is formed it shall be void. Under Section 6(2) states that any enterprise which proposes to enter into any combination shall give a notice to the Competition Commission disclosing details in the form as prescribed, and submit the form with the prescribed fee within 30 days. The Competition Act,2002 also sets a threshold below which a merger, acquisition or acquiring of control is not regarded as a combination. Section 30 of the Act, empowers the Competition Commission to determine whether the disclosure made under section 6(2) of the Act is correct and whether the combination has, or is likely to have, an appreciable adverse effect on competition in India. On receiving notice for the combination, the commission must review it within certain time limits or it is deemed to be approved. In case of no adverse effects of combination, the CCI shall approve the combination by virtue of section 31 of the Act.

Amendments to the Competition Act:

· 2006: It seeks to promote competition act to prevent anti-competitive practices and promote competition. It divides the powers of the authority into Competition Commission of India (CCI) and Competition Appellate tribunal (CAT). The Competition tribunal can adjudicate and uphold or change the decision of the CCI. The 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. The names suggested to the central government for appointing members of both the committee is by a selection committee headed by the chief justice.

· 2007: The CCI, that was supposed to function as a judicial body, would after this amendment act as an expert body to prevent and regulate anti-competitive practices. On the other hand, the CAT will hear and dispose appeals made against the decision of the CCI. In other jurisdictions, the parties are required to compulsorily notify the competition authorities, but in India notification of combinations was voluntary. There are certain limits imposed on the enterprises if the combinations are between enterprises in India or abroad, and the combined entity have assets of 500 crore or turnover of 1500 crore, it is mandatory to notify the CCI of such combination to emphasize more on promoting competition, enhancing efficiency and maximizing consumer welfare.

· 2009: The Monopolies and Restrictive Trade Practices (MRTP) Commission was to continue to exercise jurisdiction for two years after repealing of the MRTP Act, and the matters pending thereunder will be adjudicated by Competition Appellate Tribunal (CAT) in accordance with the provisions of the repealed MRTP Act as if the Act had not been repealed.

· 2012: This bill was introduced by Sachin Pilot. It brought in few amendments. The bill extends the protection of rights to include any other intellectual property rights. Post this amendment, the Act prevented any enterprise to abuse its dominant position. The Bill extends this by preventing any enterprise or group, jointly or singly, to abuse its dominant position. The acquisition, merger or amalgamation of enterprises are regulated by this Act. The voting rights of an enterprise in the other enterprise was increased from 26% to 50% It empowers the central government to specify the value of assets to examine and regulate the combinations. The enterprise has to get approval to enter into a combination, and if the commission does not approve it within a time limit, it is assumed to be approved. The limitation period has been reduced from 210 days to 180 days. The number of selection committee members is reduced from six to five.

Penalty and punishment:

The commission can set up an inquiry to judge the compliance of enterprises with various orders as mentioned under the act. But if an enterprise or person fails to comply with the orders, the enterprise or person is liable to be punished with a monetary fine extendable up to one lakh rupees for every day of such non-compliance. But it cannot be extended beyond one crore at once. If any person or enterprise breaches any order as under section 42(2), such person or enterprise shall be punished with an imprisonment for a term which will extend up to three years with a monetary penalty. Any person or enterprise can make an application to the CAT about the recovery of compensation for any loss or damage. The commission can either approve or reject it.

Inference:

The 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 act is enacted to meet the requirement of the economic and international growth of healthy competition. The Act is in compliance with other relevant policies to ensure uniformity.