Evolution of Competition law in India

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THIS ARTICLE WAS WRITTEN BY VARSHA JHAVAR, A STUDENT OF  HNLU.

Antitrust law isn’t about protecting competing businesses from each other, its about protecting competition itself on behalf of the public.

-Al Franken

Introduction

Competition means economic rivalry between entities or companies, to draw the highest number of consumers and earn the most profit. Competition law is also called in some countries as Antitrust law. Free and fair competition is essential for creating and maintaining an environment conducive to business and a prosperous country. The objective of all competiton laws, around the world is to ensure an environment where all companies compete fairly. The first act introduced in India for regulation of competition was Monopolies and Restrictive Trade Practices Act, 1969. When the Act was found to be inadeqaute, a new act called the Competition Act, 2002 was introduced.

Monopolies and Restrictive Trade Practices Act, 1969:

History:

In the 1960s three committees – one chaired by Mr. Hazari, another by Professor Mahalanobis and ‘The Monopolies Inquiry Commission (MIC)’ chaired by Mr. Das Gupta, came to the conclusion that there was a disproportionate amount of wealth with a few people. Conccentration of economic power was due to large-scale restrictive and monopolistic trade practices, a few business houses controlled a lot of companies. A bill was drafted by the Monopolies Inquiry Commission which later became Monopolies and Restrictive Trade Practices Act, 1969,(hereafter MRTP) enacted from 1^st June, 1970.

About the Act:

Monopolies and Restrictive Trade Practices Act, 1969 is the first legislation in India with regard to competition law. It was based on socialistic philosophy which is an important element of Directive Principles of State Policy. The objective of the Act was to control monopolies, i.e., avoid the concentration of power in the hands of a few people to the common detriment. The Act was reformative in nature and a firm’s market domination was determined by its size.

Shortcomings of the Act:

The Act did not define certain important restrictive trade practices such as abuse of cartels, collusion, absue of dominance and price fixing, bid rigging, etc. The government sector was given protection and preference in terms of pricing and supply, the government discriminated between the private and public sector, hence they were not on the same level in the competition. The economic reforms in 1991, LPG-Liberalisation, Privatization and Globalisation made it all the more necessary for a new competition law. India after agreeing to General Agreement on Tariffs and Trade (GATT) and Trade Related Aspects of Intellectual Property Rights (TRIPS)-important agreements of the World Trade Organization, which allowed international companies to enter domestic markets, resulted in further reduction of utility and effectiveness of MRTP Act. The Act did not provide sufficient remedy to the complainants, as it did not provide for penalties for breach of law.

Competition Act, 2002:

History:

Raghavan Committee in 1999 recommended that a new legislation should be framed for competition law for the country, because although the MRTP Act had provisions relating to anti-competitive practices, it was found to be inadequate in comparison to other countries, for encouraging competition in the industry and also for reduction of anti-competitive practices.

About the Act:

The object of this Act is to create an environment that promotes competition and safeguard the independence to do business. The Act states in its Objects and Reasons that because of globalization, India has opened up its economy to the world, removed restrictions and controls and liberlized the economy. The preamble provides for the establishment of a Commission to prevent practices having adverse effect on competition and also promoion of and sustainance of competition in markets. The aim is to protect the interest of the public. The domination of a firm is decided on the basis of firm’s structure. The act is punitive in character. It seeks to promote competition.

Salient features:

1. Anti-comptetive agreements:

Section 3 of the Competition Act, 2002 deals with anti-competitve agreements. Anti-competitve agreements are agreements entered into by enterprises or by persons with respect to production, , supply, distribution, storage, acquisition or control of goods or provision of services which has chances of causing significant amount of harmful effect. Anybody who is involved directly or indirectly in bid rigging or collusive bidding which has a substantial effect on the competition in India shall come under the provisons of this Act.

Bid rigging, defined in section 3 of the Competition Act, 2002 is a horizontal agreement, in which an agreement has been promised to one, and several parties bid for the sake of appearance, this affects competition adversely. Collusive bidding is done through an agreement between contractors or suppliers to cooperate and inflate prices to artificially high levels. It is done with the intention of illegally evading the rules set down for free and competitive bidding.

If any agreement of the following:- tie-in arrangement, exclusive supply agreement, exclusive distribution agreement, refusal to deal, resale price maintenance, all of such agreements shall come under the Act, if they have a substantial effect on the competition in India.

2. Abuse of Dominant Position:

Section 4 of the Competition Act, 2002 deals with abuse of dominant position. It is not illegal for an entity to have dominant position, but it is the abuse of the position which attracts the provisions of the Act. If an entity imposes an unfair condition or unfair price in sale or purchase, or restricts the production or scientific development of goods or services, which has a detrimental effect on the consumers, then the enterprise is engaging in abuse of its dominant position. Dominance is abused when the position of an entity in the market has been abused to secure benefits and it has substantially affected the competition in India. Dominant position, defined in the section 4 of the Act. means a position of strength, which enables an entity to operate independently of circumstances prevailing in the relevant market and also affect its competitors, consumers and the market itself.

3. Combination and Regulation of Combinations:

Section 5 and 6 of the Competition Act, 2002 deal with regulation of combinations. Combinations covers under its ambit acquisition, mergers, joint ventures, takeovers or amalgamations. These sections seek to regulate the operation and activities of combinations. The act does not allow any combinations which result in substantial adverse effect on competition in India and the combination shall be deemed void.

Case laws:

In Aamir Khan Production v/s Union of India[1], the issue was whether IP can be dealt by the Competition Commission of India (CCI), the Bombay High Court held that CCI can deal with IPR related matters if it is in direct contravention of the provisions of the Competition Act, 2002.

In Kingfisher Airline v/s Competition Commission of India[2], the CCI had imposed a fine of Rs. 1 crore on Kingfisher Airlines for not providing adequate information during CCI’s investigation of the airline’s alliance with Jet Airways.

In Hawkins Cookers Limited v. Murugan Enterprises[3], the Delhi High Court held that Hawkins Cookers Limited, a well-known mark on the pretext of being prominent and well known, could not be allowed to create a monopoly in the incidental market.

Competition Commission of India and Competition Appellate Tribunal:

It is the highest body established under the Competition Act, 2002 and is vested with the responsibility of implementation of the provisions of the Act, elimination of restrictive trade practices and for the protection of the welfare of the public.

The validity of the Competition Commission of India (CCI) was challenged in Brahm Dutt V. Union of India[4], the Central government substantially amended the Act. The CCI was reduced to position of a Market Regulator and an Expert body performing Adversary and Regulatory functions. The Competition Appellate Tribunal (COMPAT) was introduced for executing adjudicatory functions and empowered to hear any appeals against any counsel or directions made by the Competition Commission of India.

Conclusion:

Competition law is about economic rivalry between entities or companies, to draw the highest number of consumers and earn the most profit. The first legislation with respect to competition was drafted by the Monopolies Inquiry Commission and came to be known as the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP). The act had some inadequacies and then there were the economic reforms of 1991 and signing of two important agreements of WTO- the GATT and the TRIPS. The enactment of a new act became all the more essential and hence the Competition Act, 2002 was enacted. While the MRTP Act was reformatory in nature, the 2002 Act was punitive in nature. The salient features of the Competition Act, 2002 are anti-competitve agreements, abuse of dominant position and regulation of combinations. There was substantial amendment in the Act in 2007, by which the Competition Appellate Tribunal (COMPAT) was introduced. The act has been successful so far. Hence, free and fair competition is essential for creating and maintaining an environment conducive to business and a prosperous country.

[1] WRIT PETITION NO. 358 OF 2010 ALONG WITH WRIT PETITION NO. 526 OF 2010

[2] WRIT PETITION NO.1785 OF 2009

[3] MIPR 2008 (1) 128

[4] 2005 (1) TMI 410