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The existence of competition law emerged from the need to regulate fair
competition between business and to control monopolies. The need for
competition law arises because markets can suffer from failures and distortions,
and various players can resort to anti-competitive activities such as cartels, abuse
of dominance which adversely impact economies efficiency and consumer
welfare.
Competition Laws seeks to prevent the practices which are harmful to the
consumer.
To provide for the establishment of a Commission to prevent practices having
adverse effect on competition, to promote and sustain competition in markets, to
protect the interests of consumers and to ensure freedom of trade carried on by
other participants in markets, in India, and for matters connected therewith.
History of the Competition Law
The earliest ancient example of modern competition law’s ancestors is
Lex Julia de Annona, during the Roman Republic around 50 BC. To
protect the corn trade, heavy fines were imposed on direct, deliberate and
insidious attempt to stop supply ships. The study of competition began
formally in the 18th century by using different terms to describe this area
like restrictive practices, the law of monopolies, combination acts and the
restraint of trade in works like Adam Smith’s The Wealth of Nations.
European rulers and legislators repeatedly cracked down on monopolies
in the middle ages. The end of the 19th Century saw a number of laws
being enacted in the United States of America to restrict monopoly in
business practices, popularly known as anti-trust laws. The doctrine of
restraint of trade in English common law leads to modern competition
law and the United States antitrust statutes, which in turn had great
influence on the development of European community competition laws
after the World War II.
History of the Competition Law
The US Act, the Sherman Act, 1890 which prescribes agreements in
restraint of trade, appears to be the earliest Anti-Trust Statute in the
world. In India also the Contract Act was enacted which is earlier than
the Sherman Act. The Contract Act contains a provision declaring
agreements in restraint of trade as void.
The expression ‘restraint of trade’ was explained by the US Supreme
Court in ‘Business Electronic Corporation V. Sharp Electronics
Corporation’ – 285 US 717 (1988) to mean not merely a particular list of
agreements but also a particular economic consequence that may be
produced by different sorts of agreements in varying time and
circumstances.
History of the Competition Law
When the MRTP Act was drafted in 1969, the economic and trade milieu
prevalent at that time constituted the premise for its various provisions.
There had subsequently been a sea change in the milieu with
considerable movement towards liberalisation and economic reforms,
since the early 1990s. Major amendments were made to the MRTP Act in
1991, but even these were considered inadequate to deal with the
emerging economic order.
Over the years, a large number of judicial pronouncements were made on
the basis of the MRTP Act and these decisions constituted precedents for
the future. In view of the changing economic scenario, these precedents
would not have proved useful, as the decisions were made in a different
economic setting. Thus redrafting the law to suit the changing times
became inevitable.
From MRTP Act to Competition
Act
Another factor underlying the desire for a new competition law stemmed
from the changes in the international economic environment, in
particular from the establishment of the World Trade Organisation
(WTO). The Ministry of Commerce, Government of India set up an
Expert Group on interaction between Trade and Competition Policy,
subsequent to the establishment of a similar group at the WTO, following
the Singapore Ministerial Declaration of 1996.
From MRTP Act to Competition
Act
In view of the above, the Government appointed a High Level Committee on
Competition Policy and Law (Raghavan Committee) in October 1999 to advise
a modern competition law for the country in line with international
developments. There was almost unanimity among those who gave their
depositions to the Committee that the MRTP Act had outlived its utility, and that
a new competition law was required for the country, in tune with the liberalised
regime.
It was considered that amendments to the MRTP Act would have entailed
cumbersome innumerable changes in its provisions. Instead, enacting a new law
was considered a better option. Thus, after heated discussions on the
Committee’s report and the Competition Bill it recommended, as well as
parliamentary debates, Competition Act 2002 was enacted in January 2003 to
replace the MRTP Act. The Competition Commission of India (CCI) was
established in October 2003 to implement the provisions of the Act.
The Raghvan Committee, 1999
In 1991, India began a project of economic liberalization. This move away from
“command and control” economic principles culminated in an overhaul of the
competition laws. The Indian government appointed a High Level Committee on
Competition Policy and Law, known as the Raghavan Com found the MRTP to
be inadequate “for fostering competition in the market…and reducing…anti-
competitive practices…”
The committee has recommended the setting up of a new Competition
Commission to preside over the proposed Competition Act. It will hear
competition cases besides taking up competition advocacy. The committee's
recommendations - to abolish /amend many existing legislation - are
understandably sweeping in nature and for that reason will take a long time even
to be considered. The existing laws on the subject - the MRTP Act (1969) and
the Consumer Protection Act (1986), according to the committee, are not
sufficient to deal with anti-competitive practices. The MRTP Act is to be
repealed and the MRTP Commission is to be wound up, says the committee.
The Raghvan Committee, 1999
Key recommendations here are:
(1) The repeal of the following important acts: Industries Development and
Regulation Act (1951),the Sick Industries Act and the Urban Ceiling Act.
(2) Large scale disinvestment by Government in public sector units. Government
should confine itself only to defence and security areas. The present bias towards
government owned enterprises should be removed.
(3) A progressive reduction and ultimate abolition of reservation for small scale
and handloom sectors. In an era of free imports the rationale for imports will be
less convincing. For small scale units, however, the committee recommends
cheaper credit to make them competitive.
(4) On the sensitive labour issues, the committee has recommended easy exit to
``non-viable, ill-managed and inefficient units''.
Basis of Comparison MRTP Act Competition Act
MRTP Act, is the first competition Competition Act, is implemented to
law made in India, which covers rules promote and keep up competition in
Meaning
and regulations relating to unfair trade the economy and ensure freedom of
practices. business.
Nature Reformatory Punitive
Dominance Determined by firm's size. Determined by firm's structure.
1984 – The MRTP Act was amended to include provisions for Unfair Trade
Practices.
1991 – The 1991 Amendment to MRTP Act omitted provisions in respect of
Concentration of Economic Power.
1999- The Government appointed a committee on Competition Policy and Law
under the chairmanship of Mr. S. V. S. Raghavan in October 1999 for shifting
the focus of the law from curbing monopolies to promoting competition in line
with the international environment. The Committee presented its Competition
Policy report to the Government on May 22, 2000
Timeline of Evolution of Competition Law
in India
The Competition Bill, 2002 introduced in Lok Sabha on 6thAugust 2001 and
passed on 16th December 2002
The Competition Bill, 2002 passed by Rajya Sabha on 21st November 2002
The Competition Bill, 2002 received President‘s assent on 13th January 2003
The Competition (Amendment) Bill, 2006 was introduced in the Lok Sabha on
March 9, 2006.
Timeline of Evolution of Competition
Law in India
5th June, 2006 – Planning Commission constituted a Working Group on
Competition Policy
The Parliamentary Standing Committee on Finance [Chairperson: Maj. Gen.
(Retd.) Bhuwan Chandra Khanduri] submitted its report on December 12, 2006.
The Competition (Amendment) Bill, 2006 was withdrawn and replaced by the
Competition (Amendment) Bill, 2007 on 29th August, 2007
The Competition Amendment Bill, 2007 was passed by Lok Sabha on 6th
September, 2007
Timeline of Evolution of Competition Law in
India
The Competition Amendment Bill, 2007 was passed by Rajya Sabha on 10th
September, 2007
The Bill was passed by the President on 24th September 2007. The Competition
Appellate Tribunal was established through the 2007 Amendment.
15th May, 2009 – Government issued notifications giving effect from 20th May,
2009 to, among others, the provisions dealing with anti-competitive agreements
(Section 3) and abuse of dominance (Section 4) in the Competition Act.
• 2011 – Notified provisions relating to regulation of combinations with effect
from 1st June, 2011.
Key Features of the Act
Key Features of the Act.
The Act provides for the establishment of a Commission to
Prevent practices having adverse effect on competition;
Promote and sustain competition in markets; Protect the interests of consumers;
and
Ensure freedom of trade carried on by other participants in markets in India;
For matters connected therewith or incidental thereto.
The Act prohibits enterprises from entering into anti-competitive agreements, or
abuse of dominant position and regulates combinations subject to certain
thresholds.
Key Features of the Act
The Act specifically excludes the jurisdiction of civil courts to entertain any suit
or proceeding, which CCI or the Appellate Tribunal is empowered by or under
this Act to determine and also no injunction can be granted by any Court or
authority in respect of any action taken or to be taken in pursuance of any power
conferred by or under the Act.
The Commission is not bound by the procedure laid down by Code of Civil
Procedure, 1908, but shall be guided by the principles of natural justice. It has
the powers to regulate its own procedure including the places at which they shall
have their sittings etc.
The Commission has been empowered to grant interim relief, impose penalty
and to levy penalty for contravention of its orders, making of false statements or
omission to furnish material information, etc.
Competition law is applicable to
Explanation.—For the purposes of this sub-section, “bid rigging” means any agreement,
between enterprises or persons referred to in sub-section (3) engaged in identical or
similar production or trading of goods or provision of services, which has the effect of
eliminating or reducing competition for bids or adversely affecting or manipulating the
process for bidding
(4) Any agreement amongst enterprises or persons at different stages or levels of the
production chain in different markets, in respect of production, supply, distribution,
storage, sale or price of, or trade in goods or provision of services, including—
(a) tie-in arrangement;
(b) exclusive supply agreement;
(c) exclusive distribution agreement;
(d) refusal to deal;
(e) resale price maintenance,
shall be an agreement in contravention of sub-section (1) if such agreement causes or is
likely to cause an appreciable adverse effect on competition in India.
Anti-Competitive Agreements
Having discussed the various anti competitive practices, the question arises
regarding the determination of true nature of an agreement whether it is actually
causing any adverse effect to the market and competition or whether it is harmless
and pro-market. Various courts around the world and in India have formulated the
following rules to determine the anti competitive nature and effect of the
agreements:
1) Rule of Reason
2) Per Se Rule
Rule of Reason
The doctrine of Rule of reason was first stated and applied by the Supreme
Court of U.S.A. in its interpretation of the Sherman Act in the case of Standard
Oil Co. of New Jersey v. United States. Under this judgment, the supreme
court of United States observed that any restraint on the market or competition
under the then applicable Sherman Act would be anti competitive until it is for
promotional and pro competitive purposes. Also the positions before and after
the agreement came into force must be ascertained to evaluate the true nature of
the agreement, whether it has actually caused any harm to the competition or
not. Apart from this, the future probabilities of a negative effect upon the
competition, is also to be considered to adjudge the agreement as anti
competitive. The supreme court of India officially paved way for the
recognition of this rule when the MRTP Act was in force, under TELCO v
Registrar of RT Agreement. This judgment Also the parameters under section
19(3) which are to be ascertained for the purpose of analyzing the nature and
effect of an agreement, justify the applicability of rule of reason in the Indian
context.
Rule of Reason
Competition authorities around the world have been vigilant regarding the
infringement of competition in the relevant market. The European commission,
competition watch dog for the European markets, has been one of the earliest
competition authorities and a source of inspiration for the CCI.
However, with the inclusion of a proviso to section 3(3), the intent of the
legislature is to exclude certain agreements from the purview of being tagged as
anti competitive in nature and thus causing AAEC. The effect of this proviso is
that any agreement entered into by way of joint ventures if such agreement
increases efficiency in production, supply, distribution, storage, acquisition or
control of goods or provision of services, shall not be presumed to have caused
an AAEC.
Cartels
Decision:
The commission explained the term cartelization and added a new dimension to
the concept by stating that “for a cartel to be in existence it need not necessarily
meet every day or do something daily to be said to exist. Even a single series of
meetings or concerted action with the clear intent to limiting output or fixing
prices is sufficient condition for a cartel. As long as the reigning prices and
market conditions exist due to the actions of the cartel, the cartel itself would be
considered to be continuing”. In pursuance of a prima facie case established by
the informants before the commission, a detailed enquiry by the Director
General of Competition into the matter was ordered.
Judgments and orders of CCI related to Anti
Competitive practices in India
The commission agreed with the observations of the enquiry regarding the
infringement of section 3(3) and section 3(4) of the competition act 2002, based
upon the principles enlisted under section 19(3) of the said act which lays down
grounds for presumption of the fact that an agreement or arrangement has
caused AAEC. The arrangement clearly led to a horizontal agreement between
the film producers and distributors which led to the formation of UPDF, thus
positioning them on a monopolistic place in the market and manipulating the
market competition and the interest of consumers. In the view of the
commission, none of the opposite parties, in their replies, could justify their
conduct and successfully rebut the presumption imposed upon them by the
prima facie case of the informant and the detailed inquiry report of the Director
General. Hence the penalty was levied, and the association was ordered to be
withheld for being engaged in anti competitive practices.