Competition Act, 2002

Background

1.1 Monopolies and Restrictive Trade Practices Act (MRTP) was passed in 1969 to ensure that operation of economic system does not result in the concentration of economic power to common detriment. The Act also provided for control of monopolies and prohibition of monopolistic and restrictive trade practices. Subsequently, provisions in respect of Unfair Trade Practices were inserted w.e.f. 1-8-1984. After the Government of India decided to liberalise economic policy, provisions in respect of concentration of economic power were deleted by omitting Part A of Chapter III of MRTP Act w.e.f. 27-9-1991. Only powers to order division of undertaking or to direct severance of inter-connection of undertakings were retained, but these powers were never used.

After omission of these powers, MRTP Commission became a toothless tiger and was looking after cases relating to unfair trade practices and restrictive trade practices.

However, all over the world, it was found that private monopolies can be detrimental to national economy and control is required. It is now felt that fair and free competition is required for growth of healthy economy.

Hence, need was felt to make provisions to ensure that there is free and fair competition and there is no abuse of dominant position. Competition Act was passed in 2002 with this view.

1.1-1 History of Competition Act - Competition Act was passed in 2002 to replace MRTP Act. Only some sections of the Act were made effective w.e.f. 31-3-2003 and 19-6-2003. Competition Commission of India was established with head office at New Delhi, vide notification No. 1198(E) dated 14-10-2003.

However, the Chairman could not assume office due to objection raised at the time of hearing before SC in a Public Interest Litigation (PIL). Basically, there were following objections – (a) the Act provides that Chairperson of CCI need not be a judicial person. Thus, quasi-judicial powers are conferred on a non-judicial person (b) Normally, Chief Justice of SC heads Committee selecting Chairperson of quasi judicial body. In this case, Judiciary was completely bypassed in selection and appointment of Chairperson and members of Commission (b) Section 39 of the Act provided that orders passed by Competition Commission can be sent to jurisdictional High Court or the principal civil court for enforcement. This implies that High Court is subordinate to Competition Commission of India.

Supreme Court had expressed displeasure over these provisions. Government filed reply and agreed to make certain changes in law. Hence, in Brahm Dutt v. UOI AIR 2005 SC 730 = 57 SCL 429 (SC 3 member bench), it was held that Government can go ahead with formation of Competition Commission (after making changes as agreed).

Later, Competition (Amendment) Bill, 2006 was introduced in Lok Sabha for amending various provisions of Competition Act. The Bill was referred to Parliamentary Standing Committee. After considering the recommendations of Committee, Competition (Amendment) Bill, 2007 was introduced in Parliament. The Bill has been passed by both houses of Parliament in September, 2007. Some of the provisions have been brought into effect on 12-10-2007.

1.1-2 Changes made vide 2007 amendment – Following are major charges made vide Competition (Amendment) Act, 2007 –

Ø      Competition Commission of India (CCI) will be an expert body which will function as market regulator for preventing anti-competitive practices in the country. It would also have advisory and advocacy functions in its role as a regulator.

Ø      CCI will work as a collegium. There will be no ‘benches’ of Competition Commission. Its decisions will be based on majority.

Ø      Powers of CCI to impose penalty have been retained.

Ø      Notice to CCI of ‘combination’ (merger, amalgamation or takeover if the assets/turnover exceeds specified limits) within 30 days is mandatory (so far such notice was optional).

Ø      After such notice, there will be cooling period of 210 days within which CCI can approve, disapprove or suggest amendments to the proposed ‘combination’

Ø      Appeal from order of CCI can be made to Competition Appellate Tribunal (CAT). CAT will be a quasi-judicial body.

Ø      CAT can pass orders on claim of compensation for loss or damage suffered as a result of contravention of Competition Act.

Ø      Appeal against order of CAT will be with Supreme Court.

Ø      Existing MRTP Commission will continue for two years for trying pending cases, but will not take up new cases. After two years, MRTP Commission will be dissolved. Pending cases will be transferred to Competition Appellate Tribunal (CAT) or National Commission (constituted under Consumer Protection Act).

1.1-3 Present legal position of the Act – Only some sections of the Act were made effective w.e.f. 31-3-2003 and 19-6-2003. These are – 1, 2, 7, 8, 9, 10, 11 to 17, 22, 23, 36, 49 to 62, 63(1) and 63(2), 64 and 65. These pertain to definitions and formation of Competition Commission.

Out of these sections, sections 8, 9 and 36 have been substituted by new provisions, sections 10, 12, 13, 16, 17, 22, 49, 51, 52, 63(2) and 64 have been amended while section 23 has been deleted vide 2007 Amendments.

Though the Amendment Act has been brought into effect on 12-10-2007, all provisions of Amendment Act have not been made effective. Some of the amendments made in 2007 have been brought into effect on 12-10-2007. These amendments pertain to following –

Sections 53C to 53M of the Competition Act which relate to formation of CAT (Competition Appellate Tribunal) have been brought into effect w.e.f. 20-12-2007.

Thus, presently (June, 2008), only following provisions of  Competition Act are effective –

Main provisions relating to prohibition of anti-competitive agreements, prohibition of abuse of dominant position and Regulation of combinations, enquiry into agreements or abuse of dominant position and reference to and by statutory authority have not been brought into effect. These will be made effective after CCI is constituted and made operational.

1.1-4 Objections raised before SC not fully addressed -  The 2007 amendments are with intention to convert Competition Commission of India from a quasi-judicial authority to a regulatory authority (like SEBI or TRAI). Most of the objections raised in writ petition before Supreme Court have been addressed in the 2007 amendments. However, the major issue that non-judicial body like CCI has adjudicatory functions has not been fully addressed.

In reality, CCI is a quasi-judicial body – It is stated in Statement of Objects of Amendment Bill, 2007 that CCI is an expert body which will work as regulator. Regulatory functions and adjudication functions have been separated. Thus, the impression is given that CCI does not have adjudicatory role.

Really, this is not so. CCI has been given various powers like (a) ordering division of undertaking (b) ordering that an amalgamation, merger or acquisition will not have effect (c) ordering discontinuance of abuse of dominant position etc (d) Imposing  penalties and fines.

If the powers which can be exercised by CCI is not ‘adjudication’ then what is the meaning of ‘adjudication’?

Objectives of Competition Act

1.2 As per Preamble to the Act, the Act is to provide, keeping in view of the economic development of the country, for the establishment of a Competition Commission -

(a)     to pre­vent practices having adverse effect on competition

(b)     to promote and sustain competition in markets

(c)     to protect the interests of consumers

(d)     to ensure freedom of trade carried on by other participants in markets in India, and

(e)     for matters connected therewith or incidental thereto.

Thus, main purpose of Act is to ensure free and fair competition in market by prohibiting anti-competitive agreements, abuse of dominant position and by regulating competition.

Anti-trust - IN USA, anti-competitive practices are termed as ‘anti-trust’.

Overall scheme of Competition Act  - The Act is designed for following purposes –

Ø      Prohibition of anti-competitive agreements.

Ø      Prohibition of abuse of dominant position.

Ø      Regulation of combinations.

An authority named ‘Competition Commission of India’ (CCI) will be constituted, consisting of Chairperson and members. The Chairperson and members of CCI will be persons having experience in economic affairs. Thus, they will not be from judicial field.

On receipt of any information or reference, CCI can issue order to Director General of Competition Commission (DGCC) to investigate. His report will then be considered by CCI. The CCI will hear the concerned parties and then pass necessary orders.

Decisions of CCI will be taken at the ‘meetings’. There will be no ‘benches’.

CCI is empowered to order division of dominant enterprises [section 28]. It can order that a combination (acquisition, amalgamation, merger etc.) will not be effective [section 31(2)]. CCI can order discontinuance of anti-competitive agreement or discontinue abuse of dominant position [section 27]. CCI can impose penalties and fine under sections 27(b), 42(2), 43, 43A and 45 of Competition Act (These provisions have not been made effective till May 2008).

Suitable powers are given to Commission and penalties are prescribed to ensure that orders of Commission are obeyed. Jurisdiction of Civil Court is barred. Appeal to Competition Appellate Tribunal (CAT) has been provided. Appeal to Supreme Court can be made against order of CAT.

1.2-1 Distinction between MRTP Act and Competition Act

Basically, there is not much distinction between basic principles of MRTP Act and Competition Act. It was perfectly possible to incorporate the provisions of Competition Act into MRTP Act.

However, the basic change is not in the contents of the provisions but the outlook of the Act. The MRTP Act was considering the problem of monopoly and anti-competitive practices as a legal issue to be considered from legal angle, while Competition Act considers these issues as economic issues to be considered from economic point of view.

MRTP Commission was conceived as a quasi-judicial body with judicial as well as non-judicial members. It was headed by a person who is or was judge of Supreme Court or High Court. The Commission was sitting as ‘benches’. It was hearing the deciding the case as if it is a regular civil suit.

Thus, legal aspects got predominance over the business aspects. In fact, same thing happened in SICA which is a major reason for its failure.

This is also a major reason why winding up of a company continues for 20-30 years since the issue is considered as a legal issue and not economic issue. Let us hope that things will improve after matters of winding up are transferred to NCLT. In fact, the things are so bad that any further deterioration is not possible. If at all, there can only be improvement!

Competition Commission is conceived as a regulatory body of experts in economic affairs looking at the issue from economic impact of a business action. There will be no ‘benches’ of Commission. There will be no ‘complaint’, but only ‘information’ or ‘reference’. There will be no ‘hearing’, but only ‘meeting’.

The Competition Commission can be compared with SEBI or TRAI which consists of persons having expertise in the relevant field.

Of course a judge cannot ignore economic aspects and an economist cannot ignore legal aspects, but point is of emphasis and basic outlook towards an economic activity.

To ensure that legal issues are not side tracked, appeal to Competition Appellate Tribunal (CAT) and further appeal to Supreme Court has been provided.

All in all, Competition Act is an improvement over MRTP Act from this point of view. Let us hope that the Act helps in growth of economy and does not prove to be an hindrance.

Prohibition of Anti-Competitive Agreements

1.3 Anti-competitive agreements void

No enterprise or association of enterprises or person or association of persons shall enter into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which causes or is likely to cause an appreciable adverse effect on competition within India. [section 3(1)]. Any agreement entered into in contravention of the provisions contained in section 3(1) shall be void. [section 3(2)] (These provisions have not been made effective till May 2008).

Anti-competitive agreements are specified in the Act in two categories –

(a) Presumed anti-competitive agreements - here burden is on defendant to prove that the practice is not anti-competitive and

(b) Anti competitive if agreement affects competition - here the burden is on appellant (who is alleging anti-competitive practice) to prove that the practice is anti-competitive.

Presumed anti-competitive agreements - Presumed anti-competitive agreement is any agreement which - (a) directly or indirectly determines purchase or sale prices (b) limits or controls production, supply, markets, technical development, investment or provision of services (c) shares the market or source of production or provision of services by way of allocation of geographical area of market, or type of goods or services, or number of customers in the market or any other similar way (d) directly or indirectly results in bid rigging or collusive bidding. [section 3(3)].

Anti competitive if agreement affects competition - Agreement where the appellant has to prove that the practice is anti-competitive are - (a) tie-in arrangement (b) exclusive supply agreement (c) exclusive distribution agreement (d) refusal to deal (e) re-sale price maintenance. [section 3(4)].

These are discussed in later paragraphs (These provisions have not been made effective till May 2008).

1.3-1 Enterprises to whom the Provisions applies – The provisions relating to anti-competitive bidding apply to all ‘enterprises’.

Enterprise - “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 divisions or subsidiaries, whether such unit or division or subsidiary 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 including all activities carried on by the departments of the Central Government dealing with atomic energy, currency, defence and space.

For the purposes of this clause, - (a) “activity” includes profession or occupation (b) “article” includes a new article and “service” includes a new service (c) “unit” or “division”, in relation to an enterprise, includes - * a plant or factory established for the production, storage, supply, distribution, acquisition or control of any article or goods * any branch or office established for the provision of any service. [section 2(g)].

It can be seen that excluding sovereign functions of State, all activities of Government will be subject to control of CCI (Competition Commission of India). There is no exemption to Public Sector Undertakings (PSU) or enterprises controlled by Government.

Non-sovereign functions covered - Since only sovereign functions are excluded, following case law under MRTP is relevant. 

A Government department or Government providing services after levying charges (in this case - supply of water for irrigation on charging water rate) are governed by provisions of MRTP Act. Sovereign functions of Government (like police, defence etc.) are outside the jurisdiction of MRTP Commission, but non-sovereign functions are covered under MRTP - Gir Prasad v. Govt of UP  87 Comp Cas 623 = (1996) 3 Comp LJ 286 (MRTPC). - similar views in Nagrik Parishad v. Garhwal Jal Sansthan 1998 AIR SCW 3944, where it was held that person obtaining water on payment of water bill (and not water tax) is a consumer. In Surender Kumar Singhal v. Shimla Development Authority (1998) 1 Comp LJ 359 =  89 Comp Cas 820 (MRTPC), it was held that Shimla Development Authority, formed under Himachal Pradesh Town and Country Planning Act is covered under MRTP. In Lothey (B K) v. Regional Director - (1996) 10 SCL 316 = (1997) 1 Comp LJ 350 (MRTPC), it was held that National Savings Department of Government of India is rendering 'service' and hence liable for compensation.

Person - “Person” includes - (i) an individual (ii) a Hindu undivided family (iii) a company (iv) a firm (v) 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) any body corporate incorporated by or under the laws of a country outside India (viii) a cooperative society registered under any law relating to co-operative societies (ix) a local authority (x) every artificial juridical person, not falling within any of the preceding sub-clauses. [section 2(k)].

Thus, even foreign company or foreign corporation is covered under definition of ‘person’.

1.3-2 Trade and Trade Practice

Trade - “Trade” means any trade, business, industry, profession or occupation relating to the production, supply, distribution, storage or control of goods and includes the provision of any services. [section 2(w)].

Practice - “Practice” includes any practice relating to the carry­ing on of any trade by a person or an enterprise. [section 2(l)]. ‘Practice’ means ‘habitual action or carrying on’, ‘habit’, ‘custom’. [Concise Oxford Dictionary]. Thus, a stray action cannot be a ‘practice’.

1.3-3 Meaning of ‘goods’ and ‘shares’

Goods - “Goods” means goods as defined in the Sale of Goods Act, 1930 (8 of 1930) and includes - (A) products manufactured, processed or mined (B) debentures, stocks and shares after allotment (C) in relation to goods supplied, distributed or con­trolled in India, goods imported into India. [section 2(h)].

In Haridas Exports v. All India Float Glass Mfgrs Association 2002 AIR SCW 3077  = AIR 2002 SC 2728 = 2002 CLC 1061 = 111 Comp Cas 617 = 145 ELT 241 = (2002) 6 SCC 600 = 38 SCL 1020 (SC 3 member bench), it was held that goods proposed to be exported to India are not ‘goods’. They become goods u/s 2(e) only when they are actually ‘imported’. [Decision under MRTP, but relevant here as same words are used].

Shares - “Shares” means shares in the share capital of a company carrying voting rights and includes - (i) any security which entitles the holder to receive shares with voting rights (ii) stock except where a distinction between stock and share is expressed or implied. [section 2(u)].

1.3-4 What is ‘service’

Service - “Service” means service of any description which is made available to potential users and includes the provision of services in connection with business of any industrial or commercial matters such as banking, communication, education, financing, insurance, chit funds, real estate, transport, storage, material treatment, processing, supply of electrical or other energy, boarding, lodging, entertainment, amusement, construction, re­pair, conveying of news or information and advertising. [section 2(t)].

1.3-5 Meaning of ‘Price’

“Price”, in relation to the sale of any goods or to the performance of any services, includes every valuable consideration, whether direct or indirect, or deferred, and includes any consideration which in effect relates to the sale of any goods or to the performance of any services although ostensi­bly relating to any other matter or thing. [section 2(n)].

1.3-6 Informal understanding is also ‘agreement’

Agreement - “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  [section 2(b)].

Thus, oral or written, formal or informal understanding is ‘agreement’ even if it is not intended to be enforced by legal proceedings.

Presumed anti-competitive practices

1.4 Any agreement entered into between enterprises or associa­tions of enterprises or persons or associations of persons or between any person and enterprise or practice carried on, or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision of services, which –

(a) directly or indirectly determines purchase or sale prices

(b) limits or controls production, supply, markets, techni­cal development, investment or provision of services

(c) shares the market or source of production or provision of services by way of allocation of geographical area of market, or type of goods or services, or number of customers in the market or any other similar way

(d) directly or indirectly results in bid rigging or collu­sive bidding,

shall be presumed to have an appreciable adverse effect on compe­tition.

Nothing contained in this sub-section shall apply to any agreement entered into by way of joint ventures if such agreement increases efficiency in production, supply, distribu­tion, storage, acquisition or control of goods or provision of services. [section 3(3)].

In my opinion ‘directly or indirectly determining purchase or sale price’ will include ‘Resale Price Maintenance’ also and hence it will be a ‘presumed anti-competitive price’, though ‘resale price maintenance’ is covered u/s 3(4).

Shall be presumed – The words used in the section are ‘shall be presumed’. As per section 4 of Evidence Act, wherever it is directed that the Court shall presume a fact, it shall regard such fact as proved, unless and until it is disproved. - - Thus, the presumption is rebuttable, i.e. the defendant can prove that it has no appreciable adverse effect on competition. The Tribunal shall presume that the practices enumerated in section 3(3) are anti-competitive. However, defendant can prove that these are not anti-competitive.

Practices are ‘Presumed’ not ‘deemed’ - The practices (a) to (d) are ‘presumed anti-competitive practices’.  They are not ‘deemed’ anti-competitive practices. Distinction between ‘presumed’ and ‘deemed’ is that in case of a ‘deeming provision’, Court has to assume that the ‘deemed position’ is ‘real position’ and apply law accordingly. Defendant cannot prove that they are not really anti-competitive practices. In case of ‘presumed practice’, defendant can prove that they are not anti-competitive practices, but only burden of proof is on him.

1.4-1 Bid rigging - “Bid rigging” means any agreement, between enterprises or persons referred to in section 3(3) engaged in identical or similar production or trading of goods or provision of services, which has the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding. [Explanation to section 3(3)].

Bid rigging or collusive bidding is a ‘presumed’ anti-competitive agreement.

1.4-2 Cartel - “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. [section 2(ba)].

Cartel is a ‘presumed’ anti-competitive agreement.

1.4-3 Limiting or controlling production, supply etc.  – Agreement that limits or controls production, supply, markets, techni­cal development, investment or provision of services is a ‘presumed anti-competitive agreement’.

Prohibition if the agreement affects competition

1.5 Any agreement amongst enterprises or persons at different stages or levels of the production chain in different markets, in respect of production, supply, distribution, storage, sale or price of, or trade in goods or provision of services, including –

(a) tie-in arrangement

(b) exclusive supply agreement

(c) exclusive distribution agreement

(d) refusal to deal

(e) re-sale price maintenance

- - shall be an agreement in contravention of section 3(1),  if such agreement causes or is likely to cause an appreciable adverse effect on competition in India.  [section 3(4)] (These provisions have been made effective till May 2008)..

Thus, there is no presumption that the agreement is adversely affecting competition. In other words, burden is on complainant to prove that the agreement is adversely affecting competition.

However, practices enumerated in section 3(3) are ‘presumed’ (but not deemed) anti-competitive practices.

Tie in sale - “Tie-in arrangements” includes any agreement requiring a purchaser of goods, as a condition of such purchase, to pur­chase some other goods. [Explanation (a) to section 4].

Exclusive supply agreement - “Exclusive supply agreement” includes any agreement restricting in any manner the purchaser in the course of his trade from acquiring or otherwise dealing in any goods other than those of the seller or any other person. [Explanation (b) to section 4].

Exclusive distribution agreement - “Exclusive distribution agreement” includes any agree­ment to limit, restrict or withhold the output or supply of any goods or allocate any area or market for the disposal or sale of the goods. [Explanation (c) to section 4].

Refusal to deal - “Refusal to deal” includes any agreement which re­stricts, or is likely to restrict, by any method the persons or classes of persons to whom goods are sold or from whom goods are bought. [Explanation (d) to section 4].

Resale Price Maintenance - “Resale price maintenance” includes any agreement to sell goods on condition that the prices to be charged on the resale by the purchaser shall be the prices stipulated by the seller unless it is clearly stated that prices lower than those prices may be charged. [Explanation (e) to section 4]. - - Note that ‘resale price maintenance’ can get covered under section 3(3) also as ‘directly or indirectly determining price’. - - Hence, in my opinion, it will be a ‘presumed anti-competitive practice’, i.e. burden of proof will be on defendant to prove that the practice is not anti-competitive.

Direct price maintenance permitted - Resale Price Maintenance (RPM) is different from direct price maintenance, where the manufacturer sells goods through its own retail shops and fixes prices to be charged in such shops (e.g. Batas, Gwalior Rayon, etc. have their own retail shops). Fixing price in such shops is not prohibited.

Agreement not anti-competitive

1.6 Following are not anti-competitive.

Agreements permitted by law - Agreements permitted by law cannot be termed as ‘anti-competitive’. Hence, right of any person to restrain any infringement of, or to impose reasonable conditions, as may be necessary for protecting any of his rights which have been or may be conferred upon him under following Acts will not be held as Anti-competitive’ - (a) the Copyright Act, 1957 (b) the Patents Act, 1970 (c) the Trade and Merchandise Marks Act, 1958 or the Trade Marks Act, 1999 (d) the Geographical Indications of Goods (Registration and Protection) Act, 1999 (e) the Designs Act, 2000 (f) the Semi-conductor Integrated Circuits Layout-Design Act, 2000. [section 3(5)(i)].

Right for exclusive export - The right of any person to export goods from India to the extent to which the agreement relates exclusively to the production, supply, distribution or control of goods or provision of services for such export will not be held as anti-competitive. [section 3(5)(ii)].

Factors to be considered while deciding effect of competition

1.7 The Commission shall, while determining whether an agreement has an appreciable adverse effect on competition under section 3, have due regard to all or any of the following factors - (a) creation of barriers to new entrants in the market (b) driving existing competitors out of the market (c) foreclosure of competition by hindering entry into the market (d) accrual of benefits to consumers (e) improvements in production or distribution of goods or provision of services; or (f) promotion of technical, scientific and economic devel­opment by means of production or distribution of goods or provi­sion of services. [section 19(3)]

1.7-1 Rule of reason to decide whether provision is harmful to competition

In US, in early years of administration of Sherman Act, 1980, there was blanket prohibition of all contracts and combinations in the form of trust in restraint of trade or commerce. These were ‘per se’ bad. If the prohibitions were applied literally, even normal trade would have been ‘restraint of trade’, since restraint is the very essence of every contract. Hence, American courts developed approach of ‘rule of reason’ i.e. restrictions have to be considered on case to case basis.

This principle has been incorporated in provisions of Competition Act.

This principle has been accepted by Supreme Court.

Most important case on this issue is Tata Engineering (Telco) v. Registrar of Restrictive Trade Agreement  (1977) 47 Comp. Cas. 520 (SC) = AIR 1977 SC 973 = (1977) 2 SCC 55. TELCO had agreement with its dealers. Some of the Clauses were: (1) Dealer will not directly or indirectly sell the TATA trucks outside the territory assigned to him. (2) Dealer will maintain organisation for sale and service within his territory to satisfaction of TELCO. (3) Dealer will not sell, directly or indirectly, trucks of other manufacturer.

Supreme Court stated that any agreement restrains and binds persons or place or prices. Any such agreement would not be ‘per se’ bad. The question is whether the restraint is such as to regulate and thereby promote competition or suppresses competition. It will be bad if it destroys competition. Hence : (a) facts particular to business (b) condition before and after restraint and (c) probable effects of restraint, have to be considered. (This is ‘rule of reason’).

TELCO stated that they had to ensure equitable distribution of trucks so that the trucks reach even remote places like Nagaland, Tripura etc. Otherwise, the trucks will be concentrated in large metro-centers only, where demand is heavy. Prompt and efficient after sale service is vital for the truck user. Dealer has to maintain stock of spares and good service facilities with adequate equipment and trained mechanics. This would cost Rs. 5 lakhs. The dealer would not be able to maintain those facilities if he is not sure of business from that area. Consumer interest demands that he gets good after sales service. Sales tax rates vary from State to State. If there is no territorial restriction, business will be concentrated in the States where sales tax rate is lower. After sales services needs specialisation which would not be possible if the dealer deals in trucks of other makes. Thus, ultimately, consumers will suffer. If territorial restrictions are removed, consumers in remote areas would suffer and in fact, competition would suffer as in remote area, Telco trucks would not be available.

Supreme Court accepted these contentions and declared that restrictions imposed by TELCO do not amount to restrictive trade practice. It was held that the restrictions ensure equitable distribution of vehicles and efficient after-sales service to consumers. Same view was confirmed in Mahindra and Mahindra Limited v. Union of India (1979) 49 Comp. Cas. 419 = (1979) 2 SCC 529 = AIR 1979 SC 798 = (1993) 1 CTJ 182.

Prohibition of abuse of dominant position

1.8 No enterprise or group shall abuse its dominant position. [section 4(1)]. (These provisions have been made effective till May 2008).

Note that ‘dominant position’ itself is not prohibited. What is prohibited is its misuse. The abuse cam be by an enterprise or ‘group’.

Group - “Group” means two or more enterprises which, directly or indirectly, are in a position to - (i) exercise twenty-six per cent or more of the voting rights in the other enterprise; or (ii) appoint more than fifty per cent of the members of the board of directors in the other enterprise; or (iii) control the management or affairs of the other enterprise. [Explanation (b) to section 5].

1.8-1 Dominant Position - “Dominant position” means a 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. [Explanation (a) to section 4(2)].

Consumer - “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 promised 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 is for any commercial purpose or for personal use. [section 2(e)].

Note that for purpose of Consumer Protection Act, person purchasing goods/availing of services for commercial purposes will not be ‘consumer’, but he will be ‘consumer’ under Competition Act.

Relevant Market - “Relevant market” means the market which may be determined by the commission with reference to the relevant product market or the relevant geographic market or with refer­ence to both the markets. [section 2(q)].

Relevant geographic market - “Relevant geographic market” means a market comprising the area in which the conditions of competition for supply of goods or provision of services or demand of goods or services are distinctly homogenous and can be distinguished from the condi­tions prevailing in the neighbouring areas. [section 2(r)].

Relevant product market - “Relevant product market” means a market comprising all those products or services which are regarded as interchangeable or substitutable by the consumer, by reason of characteristics of the products or services, their prices and intended use. [section 2(s)]

1.8-2 Factors to be considered while deciding whether enterprise enjoys dominant position - The Commission shall, while inquiring whether an enterprise enjoys a dominant position or not under section 4, have due regard to all or any of the following factors –

(a)   market share of the enterprise.

(b)   size and resources of the enterprise.

(c)    size and importance of the competitors.

(d)   economic power of the enterprise including commercial advantages over competitors.

(e)    vertical integration of the enterprises or sale or service network of such enterprises.

(f)     dependence of consumers on the enterprise.

(g)   monopoly or dominant position whether acquired as a result of any statute or by virtue of being a Government company or a public sector undertaking or otherwise.

(h)   entry barriers including barriers such as regulatory barriers, financial risk, high capital cost of entry, marketing entry barriers, technical entry barriers, economies of scale, high cost of substitutable goods or service for consumers.

(i)     countervailing buying power.

(j)     market structure and size of market.

(k)   social obligations and social costs.

(l)     relative advantage, by way of the contribution to the eco­nomic development, by the enterprise enjoying a dominant position having or likely to have appreciable adverse effect on competi­tion.

(m) any other factor which the Commission may consider relevant for the inquiry [section 19(4)]

For determining whether a market constitutes a “relevant market” for the purposes of this Act, the Commission shall have due regard to the “relevant geographic market” and “relevant product market”. [section 19(5)]

The Commission shall, while determining the “relevant geo­graphic market”, have due regard to all or any of the following factors –

(a)   regulatory trade barriers.

(b)   local specification requirements.

(c)    national procurement policies.

(d)   adequate distribution facilities.

(e)    transport costs.

(f)     language.

(g)   consumer preferences.

(h)   need for secure or, regular supplies or rapid after-sales services [section 19(6)]

The Commission shall, while determining the “relevant product market”, have due regard to all or any of the following factors - (a) physical characteristics or end-use of goods (b) price of goods or service (c) consumer preferences (d) exclusion of in-house production (e) existence of specialised producers (f) classification of industrial products. [section 19(7)].

(Section 19 has not been made effective till May 2008).

1.8-3 What is ‘abuse of dominant position’ - Section 4(2) states that there shall be an abuse of dominant position under sec­tion 4(1), if an enterprise or ‘group’ follows any of the following practices. 

Note that these are defined as ‘abuse’, i.e. these are prohibited. If any of the following practice is followed, it is ‘abuse’, and no further proof of any damage or loss is required.

Unfair or discretionary conditions in purchase/sale - Directly or indirectly, imposing unfair or discriminato­ry  (i) condition in purchase or sale of goods or services; or (ii) price in purchase or sale (including predatory price) of goods or service is abuse of dominant position. [section 4(2)(a)].

As per Explanation to this sub-section, the unfair or discriminatory condition in purchase or sale of goods or services and unfair or discriminatory price in purchase or sale of goods (including predatory price) or service shall not include such discriminatory conditions or prices which may be adopted to meet the competition [section 4(2)(a)].

Thus, if such practices are adopted to meet competition, it will not be abuse of dominant power.

“Predatory price” means the sale of goods or provision of services, at a price which is below the cost, as may be deter­mined by regulations, of production of the goods or provision of services, with a view to reduce competition or eliminate the competitors. [Explanation (b) to section 4(2)].

Limiting or restricting production or development - Limiting or restricting (i) production of goods or provision of services or market therefor; or (ii) technical or scientific development relating to goods or services to the prejudice of consumers, is abuse of dominant position [section 4(2)(b)].

Denial of market access -  Indulging in practice or practices resulting in denial or market access in any manner, is abuse of dominant position [section 4(2)(c)]

Supplementary obligations unconnected to main contract - Making 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 to such contracts, is abuse of dominant position. [section 4(2)(d)].

Using dominant position to enter another market - Using dominant position in one relevant market to enter into, or protect, other relevant market is abuse of dominant power. [section 4(2)(e)].

For example, Microsoft used its dominant position in Disk Operating System to dominate browser market and ruined Netscape.

1.8-4 Division of enterprise enjoying dominant position - The Competition Commission may direct division of an enterprise enjoying dominant position to ensure that such enterprise does not abuse its dominant posi­tion. [section 28(1)] (Section 28 has not been made effective till May 2008).

Order of division passed u/s 28(1) may provide for all or any of the following matters –

(a)     the transfer or vesting of property, rights, liabili­ties or obligations.

(b)     the adjustment of contracts either by discharge or reduction of any liability or obligation or otherwise.

(c)     the creation, allotment, surrender or cancellation of any shares, stocks or securities.

(d)     (Omitted).

(e)     the formation or winding up of an enterprise or the amendment of the memorandum of association or articles of associ­ation or any other instruments regulating the business of any enterprise.

(f)      the extent to which, and the circumstances in which, provisions of the order affecting an enterprise may be altered by the enterprise and the registration thereof.

(g)     any other matter which may be necessary to give effect to the division of the enterprise. [section 28(2)].

No compensation to any officer of company - Notwithstanding anything contained in any other law for the time being in force or in any contract or in any memorandum or articles of association, an officer of a company who ceases to hold office as such in consequence of the division of an enterprise shall not be entitled to claim any compensation for such cesser. [section 28(3)].

1.8-5 Provisions similar to RTP under MRTP - Though the words ‘Restrictive Trade Practice’ (RTP) are not used in Competition Act, some provisions in respect of anti-competitive agreements in section 3 and abuse of dominant position in section 4 are similar to provisions of Restrictive Trade Practices (RTP) under MRTP Act. Hence, case law under MRTP will be relevant, though not binding, as wordings are different.

Inquiry into agreements or abuse of dominant position

1.9 The Commission may inquire into any alleged contravention of the provisions contained in section 3(1) or section 4(1) either on its own motion or - (a) on receipt of any information, in such manner and accompanied by such fee as may be determined by regulations from any person, consumer or their association or trade association; or (b) on a reference made to it by the Central Government or a State Government or a statutory authority [section 19(1)] (This section has not been made effective till May 2008).

Thus, Director General has no powers to make inquiry on his own [This power is available to Director General under MRTP Act].

Definition of ‘statutory authority’ has been discussed later.

1.9-1 Procedure for inquiry u/s 19 - On receipt of (a) a reference from the Central Government or a State Government or a statutory authority or (b) on its own knowledge or (c) information received under section 19, if the Commission is of the opinion that there exists a prima facie case, it shall direct the Director General to cause an investiga­tion to be made into the matter [section 26(1)].

If the subject matter of information is substantially same as covered by any previous information received, the CCI may club the new information with the previous information [proviso to section 26(1)].

Closing matter at initial stage itself - Where on receipt of a reference or information (as above), the Commission is of the opinion that there exists no prima facie case, it shall close the matter forthwith and may pass such orders as it deems fit.  Copy of the order will be sent to Central Government, State Government, Statutory Authority or the parties concerned, as the case may be [section 26(2)].

Investigation and Report by DG - The Director General shall, on receipt of direction under section 26(1), submit a report on his findings within such period as may be specified by the Commission. [section 26(3)]. The Commission may forward a copy of the report referred to in section 26(2) to the parties concerned [section 26(4)].

However, if the investigation was made on reference received from Central Government, State Government or Statutory authority, the Commission shall forward a copy of report of DG to the Central Government or the State Government or the statutory authority, as the case may be. [proviso to section 26(4)].

Procedure if report of DG recommends that there is no contravention - If the report of the Director General recommends that there is no contravention of any of the provisions of this Act, the Commission shall invite objections or suggestions from  Central Government, State Government or Statutory authority or the parties concerned, as the case may be [section 26(5)].

If, after consideration of objections and suggestions, the Commission agrees with the recommendation of the Director General, it shall close the matter forthwith and pas such orders as it deems fit. Copies of order shall be communicated to concerned parties [section 26(6)].

If, after consideration of objections and suggestions, the Commission is of the opinion that further investigation is called for - (i) it may direct Director General for further investigation, or (ii) cause further enquiry to be made or (iii) itself  inquire into the contravention as per provisions of the Act [section 26(7)].

Further enquiry by Commission if DG is of opinion that there is contravention - If the report of the Director General referred to in section 26(2) recommends that there is contravention of any of the provisions of this Act, and the Commission is of the opinion that further inquiry is called for, it shall inquire into such contra­vention in accordance with the provisions of the Act [section 26(8)].

(Section 26 has not been made effective till May 2008).

1.9-2 Orders by Commission after inquiry into agreements or abuse of dominant position - Where after inquiry the Commission finds that any agreement referred to in section 3 (in respect of anti-competitive agreement) or action of enterprise in dominant position under section 4 (abuse of dominant position), is in contra­vention of section 3 or section 4, as the case may be, it may pass all or any of the following orders -

Order to discontinue agreement/abuse – Commission can direct any enterprise or association of enterprises or person or association of persons, as the case may be, involved in such agreement, or abuse of dominant position, to discontinue and not to re-enter such agreement or discontinue such abuse of domi­nant position, as the case may be. [section 27(a)].

Imposition of penalty – Commission can impose such penalty, as Commission may deem fit which shall be not more than ten per cent of the average of the turnover for the last three preceding financial years, upon each of such person or enterprises which are parties to such agreements or abuse [section 27(b)].

Further, in case any agreement referred to in section 3 has been entered into by any cartel, the Commission shall impose upon each producer, seller, distributor, trader or service provider included in that cartel, a penalty equivalent to three times of the amount of profits made out of such agreement by the cartel or ten per cent of the average of the turnover of the cartel for the last preceding three financial years, whichever is higher. [proviso to section 27(b)]

Direction to modify agreement – Commission can direct that the agreements shall stand modified to the extent and in the manner as may be specified in the order by the Commission. [section 27(d)]

Other orders and Payment of costs – Commission can direct the enterprises concerned to abide by such other orders as the Commission may pass and comply with the directions, including payment of costs [section 27(e)]

Any other order – Commission can pass such other order or issue such directions, as it may deem fit. [section 27(g)].

Order against any group company – If the enterprise which has violated provisions of section 3 or 4 is member of a group and if other members of the group are also responsible for the contravention, the Commission can pass orders against any member of group [proviso to section 27].

(Section 27 has not been made effective till May 2008).

Regulation of Combinations

1.10 Take over, amalgamation, merger etc. are some of the ways of increasing market dominance. (The provisions are contained in section 5. the section 5 has not been made effective till May 2008).

1.10-1 Meaning of combination - The acquisition of one or more enterprises by one or more persons or merger or amalgamation of enterprises shall be treated as ‘combination’ of such enterprises and persons or enterprises in following cases.

Acquisition by large enterprises - Any acquisition where the parties to the acquisition, being the acquirer and the enterprise, whose control, shares, voting rights or assets have been acquired or are being acquired jointly have (A) either, in India, the assets of the value of more than rupees one thousand crores or turnover more than rupees three thousand crores; or (B) in India or outside India, in aggregate, the assets of the value of more than five hundred million US dollars, including at least rupees five hundred crores in India, or turn­over more than fifteen hundred million US dollars, including at least rupees fifteen hundred crores in India; will be ‘combination’. [section 5(a)(i)].

Thus, if after acquisition, the joint assets/turnover increase the aforesaid limits, it will be ‘combination’. Of course, if acquirer already had those assets or turnover, any further acquisition will be ‘combination’.

Acquisition by group - Any acquisition where the group, to which the enterprise whose control, shares, assets or voting rights have been acquired or are being acquired, would belong after the acquisition, jointly have or would jointly have (A) either in India, the assets of the value of more than rupees four thousand crores or turnover more than rupees twelve thousand crores; or (B) in India or outside India, in aggregate, the assets of the value of more than two billion US dollars, including at least five hundred crores in India or turnover more than six billion US dollars, including at least Rs fifteen hundred crores in India . [section 5(a)(ii)].

Thus, even if individual enterprise is small, if group assets exceed prescribed limit, any further acquisition will be ‘combination’ if group assets/turnover is above the limit.

Acquisition of enterprise having similar goods/services by a person - Acquiring of control by a person over an enterprise when such person has already direct or indirect control over another enterprise engaged in production, distribution or trading of a similar or identical or substitutable goods or provision of a similar or identical or substitutable service, if the enterprise over which control has been acquired along with the enterprise over which the acquirer already has direct or indirect control jointly have,— (A) either in India, the assets of the value of more than rupees one thousand crores or turnover more than rupees three thousand crores; or (B) in India or outside India, in aggregate, the assets of the value of more than five hundred million US dollars or turn­over more than fifteen hundred million US dollars. [section 5(b)(i)].

Acquiring enterprise having similar goods/services by a group - Acquiring of control by a person over an enterprise when such person has already direct or indirect control over another enterprise engaged in production, distribution or trading of a similar or identical or substitutable goods or provision of a similar or identical or substitutable service, if the group, or its constituent enterprise remaining after merger or the enterprise created as a result of the amalga­mation, as the case may be, have, - (A) either in India, the assets of the value of more than rupees four thousand crores or turnover more than rupees twelve thousand crores; or (B) in India or outside India, in aggregate, the assets of the value of more than two billion US dollars or turnover more than six billion US dollars, is combination. [section 5(b)(ii)].

Merger of enterprises - Any merger or amalgamation in which the enterprise remaining after merger or the enterprise created as a result of the amalgamation, as the case may be, have, - (A) either in India, the assets of the value of more than rupees one thousand crores or turnover more than rupees three thousand crores; or (B) in India or outside India, in aggregate, the assets of the value of more than five hundred million US dollars or turn­over more than fifteen hundred million US dollars, is ‘combination’ [section 5(c)(i)].

Merger in group company - The group, to which the enterprise remaining after the merger or the enterprise created as a result of the amalgamation, would belong after the merger or the amalgamation, as the case may be, have or would have, - (A) either in India, the assets of the value of more than rupees four thousand crores or turnover more than rupees twelve thousand crores; or (B) in India or outside India, the assets of the value of more than two billion US dollars or turnover more than six bil­lion US dollars, is combination. [section 5(c)(ii)].

Thus, broadly, ‘combination’ can be either by acquisition or merger in one enterprise or an enterprise which belongs to a group. Various limits of assets/turnover have been fixed, depending on whether the enterprise being acquired/merged has similar product/services or dissimilar product/services.

Summary of ‘combinations’ are as follows –