Competition Law

Competition Law deals with:-

1. Introduction to Competition Act, 2002

2. Competition Advocacy

3. Anti-Competitive Agreements

4. Dominant Position

5. Combination of Acquisitions

6. Competitive Commission of India (CCI)

7. Orders by Commission

8. Appeals

9. Penalties

1. Introduction to Competition Act, 2002 (CA):

In pursuit of Globalization, India responded by opening of its economy, removing controls and
resorting to liberalization. The MRTP Act, 1969 became obsolete and the Competition Act, 2002 was
passed to ensure fair competition in India by prohibiting restrictive trade practices which adversely
affect competition in markets. The Act provides a Quasi-Judicial Body called the Competition
Commission of India (CCI) or simply called ‘Commission’ which advocates fair competition.

Competition Act aims at (i) Curbing negative aspects of competition through medium of CCI, (ii)
provides for investigation by Director General for CCI, (iii) confers powers upon CCI except those
relating to unfair trade practices which are transferred to Consumer Protection Act, 1986 (CPA).
Competition Act repealed MRTP Act (Sec 66, not yet effective) and dissolved MRTP Commission. It
prevents adverse practices against fair competition and sustains competition in markets, protects
interests of consumers and freedom of trade. Competition Act was further amended in 2007 by
adding few sections. Thus Competition Act leads to economic development of the country.

Sec 2 Definitions:

a) ‘Acquisition’ means directly or indirectly acquiring or agreeing to acquire

1) Shares, voting rights or assets of any enterprise
2) Control over management or control over assets of any enterprise
c) ‘Cartel’ includes an association of producers, sellers, distributors, traders or service providers
who, by agreement among themselves limit, control or attempt to control the production,
distribution, sale or price of or trade in goods or provision of services
h) “Enterprise’ means a person or Department of Govt. who or which has been engaged in any
activity relating to production, storage, supply, distribution, acquisition or control of articles or
goods or provision of services of any kind or investment or in the business of acquiring, holding
or underwriting or dealing with stocks, 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, division or subsidiary is located at different places but not any Govt. activity,
relating to sovereignty, atomic energy, currency, defense and space
s) ‘Relevant Geographic Market’ is a market comprising the area in which 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
neighboring areas
t) ‘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 indeed their use

2. Competition Advocacy (Sec 49):

Central or State Governments may, in formulating policy on competition make a reference to CCI
for its opinion on possible effect of such policy on the competition and the CCI shall give its opinion
within 60 days. The Governments shall take suitable measures for the promotion of competition
advocacy, creating awareness and imparting training about competition issues.

Sec 60 says that the law is in addition to the other existing laws.

3. Anti-Competition Agreements (Sec 3):

1) No enterprise or association of enterprises shall enter into any agreement in respect of
production, supply, distribution, storage, acquisition or control of goods or services which
adversely affect competition in India.
2) Such agreements are void, subject to some exemptions permitted by CG.

Examples of some agreements which have adverse effect on competition include:-

3) Agreements between enterprises, association of persons, cartels of similar trade of goods or

services – which determine sale prices; control production, supply, markets, technical
development; share the market by allocation of geographical area of market, or that result in
rigging or collusive bidding.
4) Agreements between enterprises or persons in respect of production, supply, distribution,
storage sale price which include tie-in agreement*, exclusive supply or distribution agreement,
refusal to deal, resale price maintenance, etc. *requires a purchaser of goods to purchase
some other goods also, as a precondition.

Examples of some agreements which do not cause adverse effect on competition include:-
5) 1) Right of any person to restrain any infringement of, or to impose reasonable conditions,
necessary for protecting any of the rights which have been conferred upon him under the
Copyright Act,1957, Patents Act,1970, Trade & Merchandise Marks Act,1958, Geographical
Indications of Goods (Registration and Protection Act,1999, Designs Act,2000, and Semi-
conductor IC Layout-Design Act,2000.
6) Right of any person to export goods from India to the extent to which the agreement relates
exclusively to production, supply, distribution or control of goods or services for such export.
7) Any agreement entered into by way of joint ventures which increase efficiency in production,
supply, distribution, storage acquisition, or control of goods or provision of services.
4. Dominant Position: 1) It 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
relevant market, (ii) affect its competitors or consumers or the relevant market in its favor.

Abuse of Dominant Position: 1) No enterprise shall abuse its dominant position.

2) Following are examples of abuse of dominant position:-

(a) Directly or indirectly imposes unfair or discriminatory condition in sale or price in

purchase/sale (including predatory price*) of goods or services; *Less than cost/ regulation
price, to eliminate / reduce competition.

(b) Limits/restricts production of goods/services or market or technical/scientific

development, to the prejudice of consumers.

© Indulges in practices that result in denial of market access to others.

(d) Makes conclusion of contract subject to acceptance by other parties of supplementary

obligations which have no connection with subject of such contracts; and

(e) Uses its dominating position in one relevant market to enter into, or protect, other
relevant markets.

The unfair or discriminatory condition in price, purchase or sale of goods or services shall not
be included in contracts for meeting competition.

5. Combination (Sec 5): In case of acquisition, acquiring of control, merger or amalgamation,

the value of assets shall be determined by taking the book value of assets as shown in the
audited books of accounts of the enterprise in the financial year immediately preceding the
financial year in which the date of proposed merger falls, as reduced by depreciation and
the following ceilings have been laid down for being affected by Competition Act.
i) The value of assets of both the subject units in a Combination should aggregate to
Rs 1,000 cr. or the combined turnover aggregate to Rs 3,000 cr. Or
ii) If located in India or abroad, this value should correspond to US $ 500 million and
turnover to US $ 1,500 million. However, if these belong to a Group, the value of
assets in India themselves being Rs 500cr or the turnover in India being Rs 1500 cr.
 iii) The asset value of the Group should similarly be Rs 4,000 cr. or the Group turnover
Rs 12,000 cr.
iv) If the Group is located in India or abroad, the aggregate asset value should be in US
$ 2 billion and the turnover US $ 6 billion, the value in India being assets of Rs 500 cr
or turnover of Rs 1,500 cr.
Every two years the CG will review these threshold levels and revise them suitably,
in consultation with CCI.

6. The value of these assets includes the brand value, good will, copy rights, patents,
registered trade mark, and other commercial rights of both the units. If any person or
enterprise, who proposes to enter into above combinations disclose all details to
Competitive Commission of India and obtain its approval (order) before the combination
comes into effect. If CCI does not respond, after 210 days, the enterprise can presume it has
the approval of CCI (Sec 6 (2)).
This section does not apply to share subscription, financing facility or any acquisition by
Public FI, FII, Bank or Venture Capital Fund who have to apply to CCI within a week of any
such acquisition.

7. Competitive Commission of India (CCI) Sec 7 -15) : From Oct., 2003, Central Govt. had
established CCI which is a body corporate who can acquire, hold and dispose of property,
both movable and immovable and to contract and shall, by the said name, sue or be sued at
Delhi. CCI will have a Chairperson and 2-6 members Sec 8. A 5 member team shall select the
members consisting of 2 outside professionals, 2 Secretaries (of Law and Consumer Affairs
and CJI or his rep) Sec 10. They have a term of 5 years with age limit of 65 years. CG has
appointed a Director General (DG) (Sec 16 & 17 and 41) for assisting CCI and conducting
inquiry into contravention of provisions of Competition Act. CCI will conduct meetings (Sec
22) to transact business. A person or an enterprise or their Chartered Accountants or legal
practitioners and DG may appear before CCI
(i) Powers of CCI (Sec 18):
Duties: 1) Eliminate practices having adverse effect on Competition 2) Promote and
sustain Competition 3) Protect interests of consumers 4) Ensure freedom of trade by
other participants
May engage any agency in a foreign country and sign MOU for the purpose.
Sec 19: Inquiry on reference by CG/SG/any statutory body or make a decision on
receipt of information from a person or consumer or trade association and take into
account the following.
A. Factors for appreciable adverse effect on competition enquiry:
1) Barriers to new entrants
2) Driving existing competitors out of market
3) Foreclosure of competition through hindrance to entry
4) Accrue benefits to consumers
5) Improvements in production/ distribution of goods/services
 6) Promoting tech/ scientific/economic development enabling goods/ services
B. Factors for Dominant Position enquiry:
1) Market share
2) Size and resources
3) Size and importance of companies
4) Economic power of enterprise
5) vertical integration need
6) Dependence of consumers
7) Reasons for monopoly/ dominant position
8) Entry barriers
9) Countervailing buying power
10) Market size and structure
11) Social obligations
12) Advantages of being dominant power
13) Other relevant factors, if any
C. Factors for relevant geographic market
1) Regulatory trade barriers
2) Local specific requirements
3) National procurement policies
4) Adequate distribution facilities
5) Transport costs
6) Language
7) Consumer preference
8) Need for secure after sales service
D. Factors for relevant product market
1) Physical characteristics/ end-use of goods
2) Price
3) Consumer preference
4) Exclusion of in-house production
5) Existence of special producers
6) Classification of industrial products
Judicial powers of a Court: (under CPC, Cr.PC, IPC, and Evidence Act)

(a) Summoning or enforcing attendance on any person or examining for oath; (b) Requiring
production of documents; © Receiving evidence on affidavit; (d) Issuing summons for
examination of witnesses/documents; (e) and Requisitioning any public record from any office.
CCI will lay down its own procedure (Sec 36).

(ii) Restriction on disclosure of Information (Sec 57): No information obtained by CCI or

Appellate Tribunal, without obtaining the prior written permission of the enterprise shall be
disclosed otherwise than in compliance of Competition Act.
Inquiries: CCI may inquire into any incidence of contravention reported by (a) any person, trade or
consumer association; or (b) a reference by CG/SG (sec 19)/Statutory Authority (Sec 21) or © Reference
by CCI (Sec 21 A). All these sections are not yet implemented.

On receipt of such enquiries, CCI may conduct inquiry, taking various environmental factors
into account, into (i) Anti-competitive agreements (Sec 19(3), (ii) Abuse of dominant position,
and (iii) Combinations including investigation into combinations by CCI (Sec 20, 29 & 30); and (iv)
Acts taking place outside India but having an effect on competition in India (Sec 32).

(v) Procedure for Inquiry (Sec 26): On reference from CG/SG/ Statutory Authority or on its own
information, If CCI feels that there exists, prima facie, a case for inquiry, it shall direct the DG to
investigate the matter. Accordingly, the DG will conduct enquiry on parties concerned regarding
contravention of the provisions of the Act and submit his report and pass orders or close the
matter as it deems fit.

8. Orders by CCI: CCI can issue orders under sections 27 (now effective) , 38,31, 33, 39 (all not
brought into) on:-

(i) Anti-competitive agreements or abuse of dominant position (Sec 27); (ii) Orders to
discontinue or not to re-enter such agreement may be given’ (iii) Penalty may be imposed, in
addition, not exceeding 10% of the average turnover of the last three years; (iv) Direct that the
agreements stand modified to the extent directed; (v) Ask the enterprises to abide by the orders
of the Commission; (vi) Other members of the group may also be similarly directed.

(vii) Division of the Enterprise enjoying dominant position (Sec 28 (1)); Sec 28 (2) also provides
for a) transfer of rights of property, rights, liabilities or obligations b) adjustment of contracts by
reduction/ discharge c) creation, allotment, surrender or cancellation of shares e) formation/
winding up of an enterprise or change in MOA/AOA. f) Extent to which order may be altered by
the enterprise g) Any other matter that may be necessary

Sec 29: Investigation into certain combinations. Order to DG by Commission. It may issue orders
to parties within a week of receipt of DG’s report, to publish details of the Combination within
10 days of the direction, to bring this to the knowledge of all, and ask public to give written
objections, if any. The Commission may seek additional information within 15 days. Within 45
days of this the Commission shall give its orders.

(iii) Certain Combinations (Sec 31); May be approved with certain conditions.

(iv) Interim decisions/ orders as may be necessary (Sec 33); and

(v) Rectification orders (Sec 38)

Sec 39: The orders of Commission may be implemented by recovering the amounts stipulated,
through Income Tax Act.
9. Appeals (Sec 53 A –U – not yet implemented) : Appeals will be done through Competition
Appellate Tribunal (CAT), which is established by CG, which consists of a Chairperson and
not more than 2 members, to be appointed by CG. The CAT has same powers as are vested
in a civil court and shall be guided by principles of natural justice and shall have powers to
regulate its own procedure. CAT has powers to punish for contempt also and it can award
compensation and can execute orders. If any person contravenes any order of CAT, he shall
be liable for penalty. Any aggrieved person with CAT decision may go to Supreme Court
within 60 days.

10. Penalties (Sc 42 & 42A): Penalties can be levied on persons who do not comply with the
orders of CCI. Penalties will be imposed for the following:-

(i) For contravention of orders of CCI: Fine Rs 1 lac per day and imprisonment up to 3 years

(ii) For failure to comply with directions of CCI & DG: Fine of Rs 1 lac per day, subject to a
maximum of Rs 1 cr.

(iii) For non-furnishing information on combinations: Penalty up to 1% of the turnover of the

Company.

(iv)For making false statements or omission to furnish material information Sec 44): Penalty
minimum Rs 50 lacs. Maximum fine of Rs 1 cr. can be levied.

(v) For offenses in relation to furnishing of information: (Such as submission of fake

documents, withholding material facts & altering documents etc.). Fine can be levied up to Rs 1
cr.

Lesser penalty can be granted to persons who make a full and true disclosure in respect of
the alleged violations (Sec 46).

*The End*