Beyond Competition Role of Chartered Accountants in Competition Law Regime By : CA.

. Ashish Makhija , FCA, AICWA, LLB Corporate Lawyer Background India is no longer a developing economy it is now a transforming economy not only theoretically but also virtually. The open market policy pursued by the Government in early nineties has led to a dramatic change in the economic environment in our country. The private players emerged, the controls almost vanished, the pro-socialist nation tag waned and India emerged as a destination to invest and earn. The private participation in spheres hitherto reserved for public sector is major fallout of the opening up of Indian economy. The change is perceptible and no one is untouched by its influence. The competition between brand holders has increased manifold. This competition breeds unhealthy practices for which a timely and well thought of legislation was fashioned by the Government. In a sense, Indian economy moved from control era to free economy and now from free for all competition to restrained or tamed competition. Though purists may not agree with this analogy but the fact of the matter is that control in any form, by whatever name called remains a control. The Competition Act, 2002 saw the light of the day in 2003 and once all the sections are notified, there will be a quite burial of MRTP Act, 1969.

The author can be reached at ashmak@rediffmail.com.

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Roots of the Competition Act, 2002 A look at the objects of the Competition Act, 2002 (in short Act or the Act) makes it amply clear that the Act takes its roots from Articles 38 and 39 of the Constitution, which are a part of the Directive Principles of State Policy. Article 38 enjoins the State to secure a social order for the promotion of welfare of the people. Article 39 mandates that the State shall, in particular, direct its policy towards securing the following, amongst others: a. That the ownership and control of material resources of the community are so distributed as best to subserve the common good; and b. That the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment.

Objects of the Act The Act has been legislated in the backdrop of the economic development of our Country, to achieve and attain the following objectives: a. To prevent practices having adverse affect on the competition; b. To promote and sustain competition in markets;

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c. To protect the interest of consumers d. To ensure freedom of trade carried on by the other participants in market. The objects of the Act must be seen in the light of the provisions it contains. While the MRTP Act, 1969 advocated and pursued the Reformative theory by reprimanding and admonishing the negligent companies with a direction to compensate the loss incurred by the Complainant. The delinquent companies merrily repeated the purported unfair and restrictive trade practices in different form not only to ensure their sustenance but by their insatiable desire to become a magnus corporate. The Act has been legislated with stringent provisions meant to act as deterrent to the Corporate and those responsible for governing them including the Key Management Personnel. The model is based on Austins theory of Jurisprudence involving Command-Duty-Sanction. Simply put, voluntary compliances are minimal unless deterrent factor exists and the Act in the present form has sufficient structured provisions.

Salient Provision of the Act The Act, in a nutshell, contains provisions to combat anti-competitive agreements, abuse of dominant position and regulation of combinations causing or likely to cause appreciable adverse effect on competition within India. The Competition Commission established under the Act is also entrusted with the responsibility to promote competition advocacy, creating awareness and imparting training about competition issues. The definition of consumer is wide enough to cover

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not only a buyer of goods for consideration or hirer of services for a consideration but also a user of such goods or beneficiary of such services, who uses them with the approval of the buyer or hirer. Effectively, this means wider coverage and consequently higher inflow of complaints. Anti competitive Agreements The provisions relating to anti competitive agreements deal with Horizontal as well as Vertical agreements. Horizontal Agreements, including cartels, which Determine sale or purchase prices Limit or control production, supply, markets, technical development, investment or provision of services Allocate geographical area of market or type of goods or services or number of customers in the market Result, directly or indirectly, in bid rigging are presumed to have appreciable adverse effect on competition. Vertical Agreements including Tie-in arrangement Exclusive Supply Agreement Exclusive Distribution Agreement Refusal to deal

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 Resale Price Maintenance are subject to rule of reason in so far determination of appreciable adverse effect on competition. Abuse of Dominance Under the Act, dominance per-se is not prohibited but what is prohibited is abuse of dominance. The dominance is determined by various factors, namely, share of market, share of competitors, entry barriers, size and resource of enterprise/competitors, etc. Many illustrative examples of abuse of dominance have been stated in the Act, which include predatory pricing, denying market access, use dominance in one market to enter other relevant market, discriminatory or unfair price/condition in purchase or sale of goods or services. Combinations Combination includes acquisition, merger or amalgamation of one or more enterprises by one or more persons subject to satisfaction of certain conditions. The acquisition could be acquisition of shares or acquisition of control. The acquisition can be horizontal, vertical or lateral. The threshold limit for determination of combination in the event of acquisition has been laid down in a manner to exclude vast majority of smaller combinations. The Act once again satisfies the test of noninterference unless proved or demonstrated otherwise. The motto is to catch bigger fishes in line with the global trend of non-interference in

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substantial majority of mergers. The key to this provision lies in voluntary pre-notification of combinations. A time bound disposal of notification of combinations has been mandated under the Act. Thus, if the Commission does not dispose off the notification within 90 days, it shall be deemed to have been approved. The Competition Commission can also take suo-moto action if it is subsequently discovered that the combination had the appreciable adverse impact on the competition. The Commission has prescribed a time limit of one year for initiation of suo-moto action.

Role of Chartered Accountants in Competition Act Regime

The Chartered Accountants play a substantial and critical role in the growth and development of economy. With their indepth understanding of laws, accounting, business environment, MIS systems, corporate hierarchy, familiarity with governance techniques and overall understanding of economic environment, the Chartered Accountants have a significant role to play in the Competition Act regime. Who understands a corporate environment better than a Chartered Accountant who, though working independently carries out business analysis, assesses business risks and suggests ways and means to control them? Representing before Competition Commission The role of a Chartered Accountant is carved out in the Competition Law regime. Section 35 of the Act, which is reproduced as under, entitles a

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Chartered Accountant to represent before Competition Commission on behalf of any competing party: Appearance before Commission 35. A complainant or defendant or the Director General may either appear in person or authorize one or more chartered accountants or company secretaries or cost accountants or legal practitioners or any of his or its officers to present his or its case before the Commission. Explanation.- For the purposes of this section, (a) chartered accountant means a chartered

accountant as defined in clause (b) of sub-section (1) of section 2 of the Chartered Accountants Act, 1943 (38 of 1949) and who has obtained a certificate of practice under sub-section (1) of Section 6 of that Act. The representation on behalf of contesting parties is itself a huge task in itself. The representative ought to possess skills of oratory, indepth knowledge about the subject, knowledge about the industry, knowledge about the economy, knowledge about the commercial contracts and their implications. The chartered Accountants, accustomed to hard work, have to merely acquire enhanced skills to work in this area. The representation effectively implies that the Chartered Accountants can represent in cases pertaining to anti-competitive agreements, abuse of

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dominance and regulation of combination cases before the Competition Commission. Drafting Agreements Prevent and Prepare rather than Repent and Repair. The only way to escape from the crutches of the Competition Commission is to draft the agreements in such a way so as to take into account all the provisions of the Act. The Chartered Accountants can play a role of preventer by advising their client(s) on the niceties of drafting the business agreements within the four corners of the law. This role assumes before hand knowledge of the law and legal requirements and understanding of business transactions and arrangements. The basics skills of drafting imbibed in all the Chartered Accountants will play a significant role in drafting the full-fledged agreements for arrangements. Determination by Rule of Reason There are certain aspects in anti-competitive agreements, which require determination by application of Rule of Reason. The rule of reason is subject to numerous interpretations depending upon the facts and circumstances of each case. As officers of the Court (Commission), it is incumbent upon the Chartered Accountants to assist quasi-judicial bodies to arrive at reasonable interpretation. The Chartered Accountants will have to offer logical interpretations and quote precedents, if any. With their skills of appearing before various tribunals such as ITAT, CESTAT and Company Law Board, this task does not seem to be mean for Chartered Accountants.

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Knowledge of Economics and Economic Environment The Chartered Accountants are familiar with the sphygmo (meaning pulse) of the nations economic environment. This knowledge coupled with knowledge of economics, the Chartered Accountants can understand in a better way the cases falling under anti-competitive regime such as resale price maintenance. Economics provides insight into market structures, business practices, and incentives, and the probable effects of those business practices. The economic analysis will result in accurate and obvious enforcement of the Act. Role in Prohibition of Abuse of Dominant Position The first and foremost in prohibition of dominant position of an enterprise is the knowledge of being in dominant position. The Chartered Accountants with their familiarity and knowledge of business deals, which an enterprise enters into, can guide the entrepreneurs and promoters that the stage of being dominant is achieved and greater care be taken from now onwards. The steps leading to abuse can be taken unconsciously also and hence awareness of dominance being attained is crucial in such cases. Mergers and Amalgamations The advisory role that Chartered Accountants are playing in Mergers and Acquisitions can, in no way, be undermined. Whether such acquisition or merger has resulted in Combination or not, a person acquainted with numbers can play an ideal role in determining that. The Chartered

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Accountants are the first persons who are consulted while carrying out any due diligence. The combination norms will also form part of such due diligence once the residual provisions of the Act are notified. The role of Chartered Accountants is evident.

Conclusion Any new regime opens up numerous opportunities for the professionals. The Chartered Accountants are considered at the pinnacle of dealing with financial information. The understanding of business environment makes them suitable groom for brides in the form of services under the Act. The role of Chartered Accountants in the Competition Law regime is overwhelming. It is for the Chartered Accountants to garb the opportunity with both hands as the Act is new and with old precedents under MRTP Act have little relevance, all professionals are at a level playing field, which in a way, works in favour of Chartered Accountants. The only competition that Chartered Accountants face under the Act is from professionals from different spheres. The Chartered Accountants have to hone up their skills and knowledge and the only limit to their growth will be the sky on the horizon.

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