COMPETITION LAW IN INDIA

I
n 2002, the Parliament of India enacted the Competition Act, replacing the
archaic Monopoly and Restrictive Trade Practices Act (popularly referred to
as
the MRTP Act) of 1969. The primary goal of the Act, as stated in the
preamble,
is ‘...keeping in view of the economic development of the country ... to
prevent
practices having adverse effect on competition, to promote and sustain
competition
in markets, to protect interests of consumers and to ensure freedom of
trade ...’.
1
Economic theory clearly shows that the total profit in an industry
characterized by
monopoly is greater than the combined profit of all firms in the industry in
case the
industry is competitive in nature. At the same time, due to higher prices,
consumer
welfare suffers under monopoly when compared to a more competitive setup.
To
me, this is the fundamental theoretical premise behind the competition law.
The Act
intends to curb any activity that could harm consumer welfare or freedom of
any
individual (or individuals) to freely and fairly compete in the market.
Therefore, the
three broad areas for the Competition Act to look at are: (a) cartelizing
behaviour of
the firms, (b) abuse of dominant position, and (c) mergers and acquisition.
Cartels
can be interpreted as the joint effort on the part of firms in an industry to
drive prices
higher than warranted under competitive conditions. In a seminal study,
Stigler
points out that, despite this advantage, firms may not collude (and form a
cartel)
because short-term deviations from collusion agreements yield significant
short-
term payoffs. One interpretation of this argument is that the free markets
would
dissuade any cartel agreements

Several studies have shown that cartels are indeed

sustainable even under free markets.
3,4,5,6
Abuse of
dominance arises when a firm utilizes its monopoly
power in one market to extend it to the other markets;
in other words, it impedes the competitive landscape in
the other markets. Similarly, mergers and acquisitions,
by their very nature, reduce the competition in the
market. All these practices can harm consumer welfare
and can arise out of free market condition. Therefore, a
competition act is required in order to dissuade firms
from undertaking any activity that harms consumer
welfare significantly.
This colloquium brings together various articles on
competition law and its implications. We start with an
essay by Manas Kumar Chaudhuri on the emergence
of competition law from its previous avatar of MRTP
and the way forward. Chaudhuri is a leading lawyer
of competition law and a partner in the competition
practice at Khaitan & Company, one of India’s leading
law firms. He has also worked as a senior legal officer
in both MRTP Commission as well as the Competition
Commission of India (CCI) in its initial phase. His essay
discusses the emergence of regulation of competition in
India and the journey of the old MRTP Act as it meta
-
morphosed into the Competition Act. Subsequently, he
discusses the way forward for the current competition
law. In the next essay, Payal Malik discusses the goals
of competition law, specifically pertaining to the Indian

Competition Act. Malik is an Associate Professor of

Economics at Delhi University. She was the Economic
Advisor and Head of the Economics Division at the
CCI for several years.
Given that firms operate across various countries, some
cartel cases spread across various geographies span-
ning several jurisdictions. Ram Tamara and Avaantika
Kakkar discuss such cartels that are predominant in
the international arena, with specific reference to the
alleged cartelization in gold and precious metals in
the US market. Tamara is Vice President and Director
of Indian operations at Nathan Economic Associates,
an economic consulting firm based out of Washington,
DC. He has significant experience in antitrust matters
relating to the United States and the European Union
(EU). Kakkar is a partner in competition practice at
Khaitan & Co., Mumbai office. She has advised several
leading Indian companies on competition law matters.
The next essay by Chirantan Chatterjee discusses the
relationship between competition law and intellec
-
tual property and innovation. Chatterjee is a faculty
member in the Strategy Area at the Indian Institute
of Management Bangalore. Two key aspects of anti
-
trust litigation are: definition of relevant market and
measurement of market power. Another aspect of
antitrust law is calculation of damages that arise out
of illegal behaviour. These issues directly relate to the
economic theory. In this context, Shamim Mondal and
Viswanath Pingali discuss the use of economics in anti
-
trust litigation. Shamim Mondal is a faculty member
at Alliance Business School with research interests in
labour economics, competition, etc. Both Mondal and
Pingali have worked as economic consultants on anti
-
trust matters in the past. We close this colloquium with
an essay by Daniel Sokol on setting up of compliance
programmes in corporates. Sokol is a Professor at Levin
School of Law, University of Florida. He is also a Senior
of Counsel at Wilson Sonsini Goodrich and Rosati in
their antitrust practice

MRTP Act to Competition Act: The Way Forward-

he Government of India, in terms of a Notific-
ation dated 16 April, 1964 under the Commission
of Inquiry Act, 1952, constituted the Monopolies
Inquiry Commission in 1965 (the Commission).
7
The terms of reference were set out in the notification
as follows:
1.
to inquir
e into the extent and effect of concentration of
economic power in private hands and the prevalence
of monopolistic and restrictive practices in important
sectors of economic activity other than agriculture with
special reference to the following:
i.
the factors r
esponsible for such concentration and
monopolistic and restrictive trade practices;
i
i.
their social and economic consequences and the
extent to which they might work to the common
detriment; and
2.
to suggest such legislative and other measur
es that might
be considered necessary in the light of such enquiry,
including, in particular, any new legislation to protect
essential public interests and the procedure and agency
for the enforcement of such legislation.
The notification further authorized the Commission
to report on any other matter bearing on any aspect of
national economy or functioning of the private sector
and financial institutions that the Commission may
deem necessary to look into in connection with the -Mahalanobis, an eminent
economist, by then had
already examined the extent of concentration of
economic power in India prior to the setting up of
the Commission.
The terms of reference were limited and had kept
the industries under the public sector undertakings
and agriculture out of the purview of the scrutiny of
the commission. The intent perhaps would not have
been to cause any disruption in the development
of the industries under the public sector since the
Government of India would have spent initial sunk
costs in establishing these undertakings until 1964, the
date of the notification setting up this Commission.
Among the different manifestations of economic power
in the other fields of economic activity, the Commission
believed one manifestation to be important which was
the achievement by one or more units in an industry
of such a dominant position that they were able to
control the market by regulating prices or output or
eliminating competition. Another manifestation that
was considered by the Commission was the adoption
by some producers and distributors, even though they
did not enjoy such a dominant position in the market,
of business practices which restrained competition
and thereby deprived the community of the benef-
icent effects of the rivalry between producers and
producers, and distributors and distributors, to give
the best services. The Commission appeared to have
assessed the market conditions then prevailing in India
by analysing such commercial practices that may have
impeded the best utilization of the nation’s means of
production. The Commission very emphatically opined
the market realities of India then prevailing inter alia as
under:
Economic power may also manifest itself in obtaining
control of large areas of economic activity, by a few
industrialists by diverse means. Apart from affecting the
economy of the country, this often results in the creation

terms of reference. The Commission was directed to

submit the report by 31 October, 1965.
The Commission had submitted the report on 28
October, 1965 with a dissent note from Mr R C Dutt.
The Committee on Distribution of Income and Levels
of Living, under the Chairmanship of Professor P C

VIKALPA • VOLUME 41 • ISSUE 2 •

APRIL-JUNE
2016
171
of industrial empires, tending to cast their shadows over
political democracy and social values.
8

There was no doubt in the minds of the chairman and

the other members of the Commission that the concen
-
tration of economic power was the central problem
and monopolistic and restrictive trade practices may
be appropriately considered to be ‘functions’ of such
concentration. The Commission may have drawn a
strong persuasive value from the Constitution of India
more particularly from the Chapter IV dealing with the
Directive Principles of State Policy. According to Article
39 (b) and (c):
9
The State shall, in particular, direct its policy towards
securing
(a)
.............
(b)
that the ownership and contr
ol of the material
resources of the community are so distributed as
best to subserve the common good;
(c)
that the operation of the economic system does not
result in the concentration of wealth and means of
production to the common detriment.
The Commission tried to examine the causes of concen
-
tration and opined the following:
The causes of concentration of economic power in
private hands and the attendant phenomena of restric
-
tive and monopolistic practices are many and varied.
In the remote past, concentration of economic power,
in our country as also in foreign lands, flowed largely
from kingly favours. As political democracy came more
and more into its own, this source shrank in importance.
This is not to say that the favours of the big men in poli
-
tics—whether ministers in the Government or not—do
not still play their part in concentrating economic power
in the hands of a few persons. They do. But other factors,
including the various activities of the Welfare State, have
in modern times assumed a greater importance.Practices Act in 1969 (MRTP
Act) and setting up of the
MRTP Commission in 1970. The intent and purpose of
the Act and the Commission were to inquire, investi-
gate, and pass remedial orders against restrictive trade
practices. The Act and the Commission lived up to
September 2009,
11
but the jurisprudence so evolved,
barring a handful of few cases, did not improve the
market distortions more often than not caused by
unilateral and coordinated conducts of enterprises.

MRTP ACT COMPETITION ACT,2002 REMARKS

Genesis—Article Genesis—Item 21 of the List Curbing monopolies to
39(b) and (c) of the III of VII promoting trade-
Constitution of Schedule of the Constitution related competition
India of India

Monopolistic, Anti-competitive agreements Shifting from illegal per se to

restrictive, and between enterprises and
unfair trade abuse of dominance by
practices were enterprises are prohibited but
considered illegal combinations between
per se. enterprises are permitted
with a regulatory oversight.
rule of reason ensured the
industry a statutory
right to defend the allegations
on merit.
Combination provisions in the
earlier regime could not be
effectively implemented but is
absolutely important in the
new regime.

Mandatory No such provision has been In spite of mandatory

registration of inserted. registration clause,
prohibitory Section 37 of the MRTP Act by
clauses of the implication
agreements by the mandated the Commission to
Director General pass final
(DG) Investigation orders without any
and Registration registration—a serious
(I&R) in terms of defect in law.
Section 35.

No non-obstante Non-obstante clause is part of More transparent than the

clause existed. the previous
Law and the Civil Court regime
jurisdictions
are barred by law.
Intnational Itis part of the law has Helps implement principles of
cooperation policy already been implemented ‘effects
was not part of the partially. doctrine’ (Section 32
law.

The latest competition legislation of India is a civil legis

-
lation and mandates the Commission to abide by the
principles of natural justice.
16
Cartels and bid rigging
are the most pernicious anti-competitive practices, yet
the law stipulates a rebuttable presumption regime in
favour of the respondents. Thus, respondents in cartel
or bid rigging allegations are mandated to be afforded
opportunities of being heard by the DG and the CCI. Any
departure from the legal mandate may prompt the appel
-
late authorities to distinguish, on merit or on procedural
grounds, the commission’s orders in appeals which may
slow down the evolution of the jurisprudence in India.
The importance of analysing market economy concepts
is paramount, especially in cases arising out of disputes
in vertical chain and/or abuse of dominance. But the
authorities should avoid ignoring robust documentary
evidences of breach or no-breach in vertical restraint
allegations and/or abuse of dominance cases and refrain
from searching for economic theories and pass final
orders on circumstantial economic theories only. Unless
a proper balance is struck, the appellate authorities may
not appreciate departures. Sections 35 and 53S unfortu
-nately do not mandate professional economists to cause appearance before
the Commission and the Competition
Appellate Tribunal (COMPAT) which complicates the
problem further. The law mandates chartered account-
ants, cost works accountants, company secretaries and
lawyers to represent cases of their clients before the
CCI and the COMPAT, but it does not make identical
provision for economists. In reality, a complex economic
analysis should, for ends of justice, be presented by econ
-
omists who prepared them. Unless the law is amended
to this effect, the problem would remain unresolved. The
COMPAT at several occasions upheld
17
the commission’s
orders but at some other times distinguished
18
many.
The process of evolution of jurisprudence of the law is a
continuing process. India is one of the last major common
law democracies to adopt the modern competition
law; therefore, it has the benefit of drawing persuasive
values from matured jurisdictions. The international
cooperation arrangements entered into between the
CCI and its counterparts in the United States, Russia,
European Commission (EC), Canada, and Australia may
help in converging and developing international stand
-ards, whenever needed and wherever possible. Besides, the active
participation by agencies in the International
Competition Network (ICN) events may strengthen the
larger interests of the dissimilar economies to adopt
some common grounds in cross-border competition law
issues for the larger consumer welfare.

THE COMPETITION ACT -

The Preamble of the Act provides an institutional
context to the CCI. It states:
An Act to provide, keeping
in view of the economic development of the country.
This
is a rather unique and unambiguous endorsement of
the link between the micro functioning of individual
markets and the larger development imperatives of
the country. This is also to affirm that competition is
not an end in itself, but a means to achieve greater
economic goals.
The mandate of the commission, as enshrined in the
Preamble of the Act, is (a) to prevent practices having
adverse effect on competition, (b) to promote and
sustain competition in markets, (c) to protect the inter
ests of consumers, and (d) to ensure freedom of trade
carried on by other participants in markets. All four,albeit distinct objectives,
have to be seen in unison. Let
us try to decode these objectives and try and theorize
what goal(s) emerge when one sees these distinct parts
as sum of parts of a whole.
Like many other jurisdictions, maintenance of the
market processes and rights to engage in commerce
are accorded a priority in the Indian Competition Act
as well. These are seen as synonymous with striking
down or preventing unreasonable restraints on compe
tition. Other associated objectives are freedom to trade,
freedom of choice, and access to markets.
Objective of the Competition Act,2002-

Prevent policies and practices which have an adverse effect on

constructive competition in the economy
• Promote and help sustain healthy competition in the market
• Look after the interest of the consumers
• Create awareness and advocate for fair competition practices
• And finally, ensure freedom of trade in the market

COMPETITION LAW AND INNOVATION

INTERFACE—QUEST FOR DYNAMIC EFFICIENCY
The importance of dynamic efficiency as a legitimate
and compelling objective of competition policy has
been pointed out in literature as well. As mentioned
in the introduction to this article, competition law
cannot be seen in isolation from the development goals
of a country such as ours. Pursuit of static efficiency,
where competition process aims to achieve immediate
welfare objectives with no long-run trade-offs, may
not be able to serve the objective of economic devel
opment. For instance, Singh
argues that competition
policy in developing economies should support the
overall development path of an economy emphasizing
dynamic efficiency goals.
If the competition authority in its capacity as an
off-market regulator preserves and promotes a process
that ensures competition, it can, thus, act as a driving
force such that firms will aim to innovate to gain a cost
advantage, to differentiate their products, and/or to
bring new products to the marketplace. Competition is,
arguably, the strongest incentive for firms to innovate.
However, innovation requires appropriate rewards
for successful innovations, for instance, when inno
vations are significant enough, by placing the inno
vator in a quasi-monopoly situation, generating large
rent opportunities or by granting the innovator intel
lectual property rights. The link between competition
and innovation is, therefore, a complex one, and one
that is mediated by the intellectual property rights
(IPRs) regime. Allowing fragile monopolies to reward
innovation (the abuse of which can be addressed by
contestability) is a tight rope walk by the Competition
Commission, keeping in mind the dynamic efficiency
and long-term productivity implications of the same.
This emphasis on the dynamic aspects of change, the
recognition of the central role of the entrepreneur, is
in direct conflict to the price theory’s focus on static
consumer surplus and competition regulation’s tradi
tional preoccupation with consumer choice.
In adjudicating such cases, it may be important to
ascribe to a dynamic view of competition—concentrated
markets will have to be traded off for consumer benefit.
One guiding principle that can perhaps be adopted is
that only when there are clearly identified concerns to
the consumer can an intervention be deemed to be an
appropriate regulatory response—and even then only
to a degree proportionate to the concern. Regulatory
response should exclusively target objectionable activi
ties that hurt consumers (not protect some competitors)
leaving other pro-competitive conduct that benefits
consumers unregulated.

CONCLUSION
The social goals impacting the interpretation and
implementation of the Indian competition law are
evolving and are highly dependent on the institu-
tional and political contexts. However, it is important
that the application of law be guided by more objec-
tive economic goals for it to serve and what better
objective can this law fulfil other than an ‘efficiency’
objective. Adopting an ‘economic approach’ to the
application of competition law provides a reason
ably sound and competent framework for generating
consumer welfare and economic efficiency.
In disposing of a Civil Appeal no. 7779 of 2010 (
CCI
v. SAIL), the Hon’ble Supreme Court emphasizes the
pursuit of efficiency as the objective of the Indian
Competition law tracing its history. In its opening para
graphs, the judgement notes:
44
The earlier Monopolies and Restrictive Trade Practices
Act, 1969 was not only found to be inadequate but also
obsolete in certain respects, particularly, in the light of
international economic developments relating to compe
tition law.... The main objective of competition law is to
promote
economic efficiency using competition as one of the
means of assisting the creation of market responsive to consumer
preferences.
The advantages of perfect competition are
threefold: allocative efficiency, which ensures the effec
tive allocation of resources, productive efficiency, which
ensures that costs of production are kept at a minimum
and dynamic efficiency, which promotes innovative prac-
tices. These factors by and large have been accepted all
over the world as the guiding principles for effective
implementation of competition law. (emphasis added)
The Court observes that the main objective of compe
tition law is to promote economic efficiency using
competition as one of the means of assisting the creation
of a market responsive to consumer preferences. While
highlighting the aims of competition law, in the
CCI v. SAIL
judgement, the Supreme Court makes a reference
to the relevant laws of other jurisdictions including
that of United States, United Kingdom, and Australia.
It would not be far-fetched to argue that the court
has indirectly hinted that, in future, it shall definitely take into account the
competition law jurisprudence
developed in these jurisdictions while deciding conten
tious issues.
It would be a mistake to deploy competition law in
service of an income distribution and reallocation of
resources from efficient firms to smaller firms to main
tain some ‘ideal’ number of firms. The baggage of a
planned economic development, where the winners and
losers are chosen by command and control mechanism,
cannot be transplanted to this modern law. Competition
law is an instrument of a capitalist as against a socialist
economy and is best suited to promote economic devel
opment by promoting efficiency.
The Second Theorem of Welfare Economics is a good
guide for establishing the objectives of competi
tion law. The implication of the theorem is that the
problem of distribution and efficiency can be sepa-
rated. Competition law is best suited to address the
latter. Issues of equity can be addressed by rear
ranging endowments. In the real world, we can rear
range endowments by lump-sum transfers. Lump-sum
transfers are tax/subsidy policies that do not distort
competitive prices. Thus, an efficient tax policy and
other instruments can serve this role. Let the markets
perform the allocative/development role, where prices
determined in a competitive economic system indicate
relative scarcity. A problem with admitting alterna
tive goals is that the resulting framework becomes less
robust and more susceptible to interest group ‘capture’