Tuesday, 4 April 2017

Pallavi Gupta

ORIGIN AND BACKGROUND OF COMPETITION LAW IN INDIA

competitionlaw-lawji.in

INTRODUCTION

Competition law is a specific law which has the objective of promoting and maintaining competition in the markets by regulating anti-competitive conduct. It is also known as antitrust law in the United States. The history of competition law reaches back to the Roman Empire. Since the 20th century, competition law has become global. Now, more than hundred countries have adopted competition law as a natural corollary to embracing economic reforms and market economies.

Competition is a process of economic rivalry between market players to attract customers. Competition also refers to a situation in a business environment where businesses independently strive for the patronage of customers in order to achieve their business objective. Free and fair competition is one of the pillars of an efficient business environment.

India’s earlier Competition related law - Monopolies and Restrictive Practices Act, 1969 became outdated after liberalization of economy in 1991. Competition Act, 2002 was passed in January 2003 with the objective of preventing practices having adverse effect on competition, promoting and sustaining competition in markets, protecting the interests of consumers and ensuring freedom of trade carried on market participant. Competition Commission of India (CCI) was set up in October 2003 to implement the law. However, legal challenge prevented full constitution and enforcement and only advocacy function was notified. Law was amended in 2007.

India has had a history of competitive markets. However, the license raj regime, which continued until the early 1990’s (it might have been justified when conceived but had long outlived its utility), severely stunted economic development. The economic crisis that confronted the country led to a slew of economic reforms beginning with the introduction of the New Economic Policy (NEP) 1991 and the New Industrial Policy (NIP) 1991. The liberalization and competition that followed has been reflected in higher GDP growth, expansion of employment opportunities, and a dramatic rise in the availability and choice of goods and services for the consumer; the benefits of which have been more visible in certain sectors such as airlines, telecom, automobiles, consumer electronics and durables. Competition law became even more important than before in this new era better known as the Liberalisation-Privatisation-Globalisation (LPG) era. In this new era, competition has been helping the Indian consumer and industry in ways that could not even have been conceived or visualized before. However, a market economy has its own drawbacks; and governments have legitimate social concerns, especially for the poor and the deprived. Market failures do take place, and unscrupulous players can often undermine the benefits through anti-competitive practices. Keeping in mind the propensity of businesses to exploit the market for individual gain and the immense potential for market failure or abuse has led almost a hundred countries all over the globe to enact modern competition laws and to set up competition authorities to watch the market practices in this area.

Law is being implemented by Competition Commission of India (CCI), which was constituted in 2009 as an autonomous independent body comprising Chairperson and six members. Appeal lies to Competition Appellate Tribunal also set up in 2009 with final appeal to Supreme Court of India. Section 3 & 4 relating to anti- competitive agreements and abuse of dominance position in India.

Thus, Indian Competition Law has fully come into force. The Competition Act, 2002 (as amended), [the Act] aims at protecting Indian markets against anti-competitive practices by enterprises. The Act prohibits anti-competitive agreements, abuse of dominant position by enterprises, and regulates entering into combinations (consisting of mergers, amalgamations and acquisitions) with a view to ensure that there is no adverse effect on competition in India.

In the recent years the Indian economy has been one of the best performers and is on high growth path. Infusion of greater degree of competition can play a catalytic role in unlocking the fuller growth potential in many critical areas of the economy. In the interest of consumers, and the economy as whole, it is necessary to promote an environment that facilitates fair competition outcomes in the market, restrain anti-competitive behaviour and discourage market players from adopting unfair trade practices. Therefore, competition has become a driving force in the global economy.

NEED FOR COMPETITION LAW IN INDIA

In the wake of liberalization and privatization that was triggered in India in early nineties, a realization gathered momentum that the existing Monopolistic and Restrictive Trade Practices Act, 1969 ("MRTP Act") was not equipped adequately enough to tackle the competition aspect of the Indian economy. With starting of the globalization process, Indian enterprises started facing the heat of competition from domestic players as well as from global giants, which called for level playing field and investor-friendly environment. Hence, need arose with regard to competition laws to shift the focus from curbing monopolies to encouraging companies to invest and grow, thereby promoting competition while preventing any abuse of market power.
Competition is a situation in market, in which sellers independently strive for buyer’s patronage to achieve business objectives. Competition and liberalization, together unleash the entrepreneurial forces in the economy. Competition offers wide array of choices to consumers at reasonable prices, stimulates innovation and productivity, and leads to optimum allocation of resources.

Abuse of market and need for new law

In an open market economy, some enterprises may undermine the market by resorting to anti-competitive practices for short-term gains. These practices can completely nullify the benefits of competition. It is for this reason that, while countries across the globe are increasingly embracing market economy, they are also re-inforcing their economies through the enactment of competition law and setting up competition regulatory authority.
In line with the international trend and to cope up with the changing realities India, consequently, enacted the Competition Act, 2002 (hereinafter referred to as "the Act"). Designed as an omnibus code to deal with matters relating to the existence and regulation of competition and monopolies, the Act is intended to supersede and replace the MRTP Act. It is procedure intensive and is structured in an uncomplicated manner that renders it more flexible and compliance-oriented. Though the Act is not exclusivist and operates in tandem with other laws, the provisions shall have effect notwithstanding anything inconsistent therewith contained in any other law.’

ORIGIN & BACKGROUND

In India, regulatory measures were provided for the first time in the term by virtue of the enactment of the Monopolies and Restrictive Trade Practices Act (MPTP Act), 1959 which generally drew its inspiration from the mandate enshrined in the Directive Principles of State Policy in the Constitution. Originally intended to prevent concentration of economic power in a few hands, to control monopolies and to prohibit monopolistic and restrictive trade practices, the MRTP Act had its genesis, specifically in clauses (b) and (c) of Article 39 of the Constitution of India. One of the basic tenets of our State Policy is, therefore, to ensure that while promoting economic and industrial growth for the welfare of the citizens, progressive reduction in the concentration of wealth and economic power is also brought about, in order to secure social and economic justice. However, not all are of the same view with regards to the enactment of the MRTP Act as M. V. Kamath has observed that the trend towards a decentralized economy has been halted by the appointment of the MRTP Commission.

The past few years have been challenging for the economy and for businesses world over, making the task of policy makers even more daunting. India, in the pursuit of globalization responded by opening up its economy by removing controls and resorting to liberalization. In the light of this, the obvious need of the hour was that the Indian market be geared to face competition from within the country and outside. The financial crisis which gripped world strengthened the need and highlighted the importance of a strong and effective competition policy, a policy which would encourage markets to work well for the benefit of business and consumers, thereby increasing the country’s economic fitness: markets characterized by effective competition makes firms innovate more, keep prices down for consumers and improved total factor productivity drives economic growth. These factors are all the more relevant given the financial challenges faced by the country. It is clear that ultimately, the way out of this crisis – for the financial sector and the wider economy – lies with competitive markets, backed up by a robust competition policy.

Competition policy is defined as those government measures that affect the behaviour of enterprises and structure of the industry with a view to promoting efficiency and maximizing consumer/ social welfare. There are two components of a comprehensive competition policy. The first involves putting in place a set of policies that enhance competition or competitive outcomes in the markets, such as relaxed industrial policy, liberalized trade policy, convenient entry and exit conditions, reduced controls and greater reliance on market forces. The other component of competition policy is a law and its effective implementation to prohibit anti competitive behaviour by businesses, to prohibit abusive conduct by dominant enterprise, to regulate potentially anti competitive mergers and to minimize unwarranted government/regulatory controls.

In the wake of economic liberalization and wide spread economic reforms introduced by India since 1991 and in conformity with the commitments made at the WTO, in October 1999, the Government of India appointed a High Level Committee (Raghavan Committee) on Competition Policy and Competition Law to advise a modern competition law for the country in line with international developments and to suggest a legislative framework, which may entail a new law or appropriate amendments to the MRTP Act. The Committee submitted its report to the Central government. The Central Government consulted all concerned including the trade and industry associations and the general public. The Central Government after considering the suggestions of the trade and industry and the general public decided to enact a law on Competition to replace the then existing competition law namely, the Monopolies and Restrictive Practices Act (1969) (the MRTP Act) which was primarily designed to restrict growth of monopolies in the market with a modern competition law in sync with the established competition law principles. As the first step towards this transformation, a new Competition Act, 2002 was enacted which received Presidential assent on January 13, 2003.

COMPARATIVE ANALYSIS OF COMPETITION LAW WITH OTHER COUNTRIES AND DEVELOPMENT OF COMPETITION LAW IN INDIA

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 hard-core 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.

Monopolies Inquiry Commission

In order to make a comprehensive inquiry in pursuance of the recommendations of the Mahalanobis Committee, the Government of India, on April 16, 1964, appointed the Monopolies Inquiry Commission (MIC) under the chairmanship of Mr. Justice K. C. Das Gupta.

Doctrine guiding the MRTP Act

Behavioural and reformist doctrines govern the MPTP Act. In terms of the behavioural doctrine, the conduct of the entities, undertakings and bodies which indulge in such a manner as to be detrimental to public interest, is examined with reference to whether the said practices constitute any monopolistic, restrictive or unfair trade practice. In terms of the reformist doctrine, the provisions of the Act provide that if the MRTP Commission (established as a regulatory authority under the MRTP Act), upon enquiry comes to a

Conclusion that an errant undertaking has indulged either in a restrictive or an unfair trade practice, it can direct such undertakings to discontinue or not to repeat the undesirable trade practice in future.

The Act also provides for the acceptance of an assurance from an undertaking that it has taken steps to ensure that the prejudicial effect of such trade practices no more exist. The veneer of the Act is essentially based on an advisory or reformist approach as a mere ‘deterrence by punishment’ approach has not been regarded by the lawmakers as a desirable way to make an errant undertaking to behave itself.

Ambit and Coverage or MRTP Act

The Indian statute, as most competition laws in the world, encompasses within its ambit, essentially, three types of prohibited trade practices – namely, Restrictive Trade Practices (RTP), Unfair Trade Practices (UTP), and Monopolistic Trade Practices (MRTP). Very briefly, the core of each such practice is enumerated below:

Dominance

Under the MRTP Act, the basis for determining dominance is whether an undertaking has a share of one-fourth or more in the production, supply, distribution or control of goods or services. However, after the 1991 amendments to the Act, there is no specific provision in the law that connects dominance in the production, supply, distribution or control of goods or services with any offence.

Applicability of the MRTP Act

During the year 1991, a notification was issued by the Government that the MRTP Act shall apply to public sector undertakings whether owned by the government or by Government companies, statutory corporations, undertakings under the management to various controllers appointed under any law. Thus, after this amendment to the Act, there is no longer any distinction between the public sector undertakings and private sector companies in the matter of monopolistic, restrictive and unfair trade practices.

MRTP Commission

Under the Act, an MRTP Commission has been established, the Chairman of which, is a person who is, or has been, or is qualified to be, a judge of the Supreme Court or any High court. The Members of the Commission are persons of ability, integrity and standing who have adequate knowledge or experience of, or have shown capacity in dealing with problems relating to economics, law, commerce, accountancy, industry, public affairs or administration.

High Powered Expert (Sachar) Committee

During the course of the implementation of the MRTP Act, certain difficulties were encountered. It was felt that the objectives of the Act had not achieved to the desired extent. Several deficiencies and lacunae were noticed in the provisions of the Act and the powers given to this enforcement agency were considered to be inadequate. Suggestions for amendments in the Act were also received from various quarters, including the Commission itself. Upon realization of the need for an in-depth review of the working of the MRTP Act and the Companies Act 1956, the Government appointed in June 1977, a high-powered expert committee, under the chairmanship of Justice Rajinder Sachar, to consider and report changes necessary in the two legislations. The Sachar Committee submitted its report to the Government in August, 1977.


At the same time the Committee also recommended that public sector enterprises should be brought within the purview of the MRTP Act insofar as their monopololistic, restrictive and unfair trade practices were concerned. The Committee strongly recommended that the powers of the MRTP Commission be enhanced and suggested the setting up of a Directorate General of Trade Practices headed by a Director General. On the functional side, it recommended that the test of determining the dominance of an undertaking in respect of its market share should be one-fourth, instead of one-third, of the market share in respect of any goods or services, as it then stood.

Major Amendments in the MRTP Act

On the basis of the recommendations of the Sachar Committee and the need for amending certain provisions of the MRTP and in the light of some judicial pronouncements as also the recommendations of the Prakash Tandon Committee, set up by the Government of India in 1980 for suggesting a long-term strategy for exports, it was felt that few amendments of an urgent nature should be brought about in the structure of the MRTP Act. Though the Act was thereafter amended in the years 1980, 1982, 1984, 1985, 1988 and 1991, some of the major amendments are summed up herein below in order to trace the evolution of the MRTP Act in India.

The Competition Act, 2002

This Act was introduced as a replacement to the Monopolies and Restrictive Trade Practices Act, 1969. Section 55 of the Competition Act provides for the repeal of the MRTP Act and for the transfer of connected matters to the Competition Commission set up under the Competition Act 2002. The repeal is on the ground that the MRTP Act is no longer suited to deal with issues of competition that may be expected to arise with the advent of the new liberal business environment prevalent in the country today. The antitrust issues that are specifically covered by this Act are as enunciated below:
a) Anti-competitive agreements ;
b) Abuse of a dominant position; and
c) Any combination, whether by way of an acquisition of an enterprise or merger of enterprises, above the prescribed threshold level of the assets or turnover of the enterprises involved in the combination.

Extra Territoriality

The Act has extra-territorial jurisdiction and provides that the Commission shall have the power to inquire into an agreement or abuse of dominant position or combination even if the act in question has taken place in a territory outside of India or by an enterprise that is located outside of India provided that, it has an appreciable adverse effect on competition in the relevant market in lndia. Thus, the governing factor is the effect in the domestic market – this is also referred to as the “effects doctrine”. Further, the Commission is allowed under this proviso to enter into Memorandum of Agreements (MoU’s) or arrangements with any agency of any foreign country, with the prior approval of the Central Government. This provision is in support of the extra-territorial jurisdiction of the Commission. The jurisdiction of the Competition Act extends to all sectors of the economy. Sectors regulated by sector specific laws such as telecommunications or electricity are not excluded from the purview of this Act.

Competition Advocacy

The mandate given to the Commission under the Act includes the powers to promote competition advocacy. Section 49(3) states that the Commission shall take suitable measures, as may be prescribed, for the promotion of competition advocacy, creating awareness and imparting training about competition issues, and activities that should strengthen the competition culture in the market.

CONCLUSION

The Competition Act ushers in a new Competition Regime in India. The new regime will herald a paradigm shift to the business environment in India. A significant section of Indian industry is, perhaps rightly so, apprehensive about this new enactment and its possible impact on them. Industry is also anxious that the advantages to various sectors arising out of competition should percolate to consumers and businesses for a level playing field, redressal against anti competitive practices, competitively priced inputs and optimal realization from sale of assets. While the objective of the Competition Act, 2002, as stated in its preamble, is undoubtedly laudable and needless to say that this dynamic statute can and will touch and change the way Corporate India functions on a day to day basis, what is important is that the investigations and inquiries under the provisions of the Act should be concluded as expeditiously as possible and timing issues need to be addressed.


In addition, it is very important to have detailed guidelines and a framework within which the approval would be given by the Competition Commission. This could help mitigate the likely element of uncertainty by an upfront evaluation of the parameters contained in the guidelines. One hopes the government will take such issues seriously and take steps to address them.


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 delegatee 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.


Since attaining Independence in 1947,India, for the better part of half a century thereafter, adopted and followed policies comprising what are known as Command-and-Control laws, rules, regulations and executive orders. The competition law of India, namely, the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act, for brief) was one such. It was in 1991 that widespread economic reforms were undertaken and consequently the march from Command-and-Control economy to an economy based more on free market principles commenced its stride. As is true of many countries, economic liberalisation has taken root in India and the need for an effective competition regime has also been recognized.

In the context of the new economic policy paradigm, India has chosen to enact a new competition law called the Competition Act, 2002. The MRTP Act has metamorphosed into the new law, Competition Act, 2002. The new law is designed to repeal the extant MRTP Act. As of now, only a few provisions of the new law have been brought into force and the process of constituting the regulatory authority, namely, the Competition Commission of India under the new Act, is on. The remaining provisions of the new law will be brought into force in a phased manner. For the present, the outgoing law, MRTP Act, 1969 and the new law, Competition Act, 2002 are concurrently in force, though as mentioned above, only some provisions of the new law have been brought into force.