UNIT 4

The Competition Law in India

Introduction to Competition

Competition is a process of economic rivalry between market players to attract

customers. Such market players can be multinational companies, domestic firms,
wholesalers or retailers of various goods and services. The World Bank has defined
Competition as a situation in a market wherein firms or sellers independently strive for
the buyer’s patronage in order to achieve a particular business objective e.g., profits,
sales and/or market share.

All forms of economic transactions are usually done with a motive of earning a profit.
However, at times when the tendency to make profits is stretched too far by market
players, it can result in market malpractices. One such malpractice is anti-competitive
practices, when a player resorts to unfair means for undertaking its operations.. One
common practice is when competitors enter into covert and overt agreements among
themselves to raise prices, allocate markets among them or restrict output. Such
practices stifle the possibility of consumers to obtain quality goods or services at low
cost – which is an expected outcome of well-functioning markets.

A free market is based on the principle of survival of the fittest, compelling firms to
make continuous effort to enhance efficiency and offer a wide range of choice to their
customers. However, there is a need for regulating the process of competition in such a
market economy – and hence the role of the competition enforcement agency becomes
extremely crucial and relevant. Competition forces firms for optimal allocation and
utilization of available resources. Thus, competition is a necessary tool to promote
efficiency and innovation which finally leads to greater productivity, economic growth
and consumer welfare

Economic rationale for competition (Perfect competition v/s Monopoly)

Competition promotes productive allocative efficiency by leading firms to produce

output up to the point where marginal cost of each unit is equal to the value of that unit
to the consumer. Competition is the factor which motivates the producer to achieve the
efficiency of three kinds.

 Allocative Efficiency
 Productive Efficiency Static efficiency (Aims at better output at same input)
 Dynamic efficiency
BENEFITS OF COMPETITION

Some of the significant bearings of pro-competitive policies and practices are

enumerated below:

 Low Prices: The immediate advantage of a competitive market is low

prices of the goods sold. A competitive market provides the consumers a
wider spectrum of price choices and the consumers then can make choice
so as to buy products or services at a price band that they are comfortable
with.
 Better Quality Presence of a number of competitors can force companies to
invest more in research and development (R&D) of the product or service
in question. Enhancement of quality of the product or service provides
consumers a choice to procure an enhanced quality product at a
comparatively lower price.
 More Choices Owing to the fact that competition ushers in lower prices
coupled with better quality of goods, allows the consumers to have
several choices which in turn provides the consumers the right to exercise
choices for purchasing a product.
 Innovation Large number of competitors in a market compels the
manufacturers and producers of goods and services to constantly innovate
their product to keep themselves ahead of their rivals.
 New Entrants One of the aims of a functional competition policy is to
remove entry barriers in a market. This allows new entrants into the
market; providing consumers the right to exercise her/his choice. Such a
situation characterized by ease of entry in the market also helps the
overall economy.
 Better Services Competitors often provide certain additional services that
allow them to either acquire or retain customers. Competition allows the
competitors to provide better and timely services to consumers.
 Check on Concentration of Economic Power: Concentration of economic
power occur when the market is dominated by a single or a handful of
firms. Competition reduces such concentration of economic powers and
enhances economic democracy and transparency in an economy.
The concept and importance of a fair and healthy competition as
summarized by the Hon’ble Supreme Court of India in the case of CCI vs.
SAIL -“Over all intention of competition law is to limit the role of market
 power that might result from substantial concentration in a particular
industry. The major concern with monopoly and similar kinds of
concentration is not that being big is necessarily undesirable. However,
because of the control exerted by a monopoly over price, there are
economic efficiency losses to society and product quality and diversity
may also be affected. Thus, there is a need to protect competition. The
primary purpose of competition law is to remedy some of those situations
where the activities of one firm or two lead to the breakdown of the free
market system, or, to prevent such a breakdown by laying down rules by
which rival businesses can compete with each other. The model of perfect
competition is the economic model that usually comes to an economist‘s
mind when thinking about the competitive markets.

Competition Law

Competition law is that which ensures competition in the market by preventing all the
practices that are anticompetitive in nature. If free enterprise is unprotected by the
Government it may lead to anti-competitive practices which will lead to inefficiencies in
the market. We need competition law to prevent market distortions and failure as a
result of various anti-competitive practices as cartel, abuse of dominance, predatory
pricing etc. entered into by the various market players

Competition law is that force which motivates the market players to search for that sort
of permutation and combination of activities that will result in greater efficiency. This
efficiency results in maximum production out of minimum resources which is
ultimately leading to consumer benefits.

Competition act as a driving force for the competition in the free market. Competition
is necessary for a free market to work better and efficiently.

A. Evolution of Competition Law in India, Difference from the MRTP Act

Constitution of India in its quest for building up a just society has mandated the state to
direct its policy towards securing that end. Article 38 and 39 of the Constitution of India
poses a mandate on the states by way of directive principles of state policy to promote
welfare of the people by securing and protecting, as effectively as it may, a social order
in which justice- social, economic and political shall inform all the institutions of the
national life and the state shall, in particular, direct its policy towards securing-

 Distribution of Ownership and control of material resources of the community

in the best possible manner which best serve the common good.
  Economic system should be built in such a manner that it should not result in
the concentration of wealth and means of production to the common detriment.

MRTP Act was the result of the above said mandate. Main focus in this act was to
prevent the concentration of economic power which was there due to the then prevalent
economic system in India.

Feature of Economic system which resulted into Concentration of power in few

hands.

Industrial Policy Resolution 1948:

Under this policy, the large industries were classified in four categories viz. Strategic
Industries, Basic / Key industries, Important Industries and other industries which
respectively referred to Public Sector; Public-cum-Private Sector; Controlled Private
Sector and Private & Cooperative sector.

Some industries were to remain in private ownership but subject to overall regulation
and control by the government. Such industries included automobiles and tractors,
sugar, cement, cotton and woollen textiles etc.

The Industrial Policy of 1948 thus laid down the foundation of a mixed economy
wherein the public sector (the state) and the private sector were to co-exist and work in
their demarcated areas.

IPR, 1948 gave public sector vast area to operate. Government took the role of catalytic
agent of industrial development. The resolution assigned complementary role to small-
scale and cottage industries. The foreign capital which was seen with suspect in the pre-
independent era was recognized as an important tool to speedup up industrial
development.

IDRA, 1951

IDRA, 1951 is the key legislation in the industrial regulatory framework. IDRA, 1951
gave powers to the government to regulate industry in a number of ways. The main
instruments were the regulation of capacity (and hence output) and power to control
prices. It specified a schedule of industries that were subject to licensing. Even the
expansion of these industries required prior permission of the government which
means the output capacity was highly regulated. The Government was also empowered
to control the distribution and prices of output produced by industries listed in the
schedule. The IDR Act gave very wide powers to the Government. This resulted in
more or less complete control by the bureaucracy on the industrial development of the
country.

Industrial Policy 1956

The second five- year plan gave high priority to industrial development aimed at
setting up a number of heavy industries such as steel plants, capital goods industries,
etc., for which direct government participation and state involvement was needed.

The four fold classification of the 1948 Industrial Policy was changed now to a threefold
classification in Schedule A, B and C industries.

(1) New classification of Industries: IPR, 1956 divided the industries into the following
three categories:

(a) Schedule A industries: The industries that were the monopoly of state or
Government. It included 17 industries. The private sector was allowed to operate in
these industries if national interest so required.

(b) Schedule B industries: In this category of industries state was allowed to establish
new units but the private sector was not denied to set up or expand existing units e.g.
chemical industries, fertilizer, synthetic, rubber, aluminum etc.

(c) Schedule C industries: The industries not mentioned in the above category formed
part of Schedule C.

It emphasized on growth, social justice and self-reliance. It also defined the parameter
of the government’s regulatory system. Main feature of this policy was to make
industrialization subject to government intervention and regulation. Private sector was
allowed limited licensed capacity in the core sector and the public sector was given the
mantle to achieve the commanding heights of the economy. Mainly public sector was
made responsible for the development and growth of the core areas like steel coal
power, etc.

Government control was prevailing in all sectors of economic activity in the country.
Government There was neither easy entry nor an easy exit for the enterprises.
Government was the ultimate authority to decide the size of the plant, location of the
plant and even the prices were determined by the government. Their further
interventions were characterized by high tariff walls, restrictions on foreign investments
and quantitative restrictions. Effect of these policies was no competition in the market.
Licensing policy of the government was more favorable to big business houses as they
were the only ones with large capitals and managerial skills to run the industry as well
as the repo in seeking loans from the banks and financial institutions.

All this system resulted in the concentration of economic power and resources in big
business houses. This entrenchment of a few individuals led to the emergence of
monopolistic industries and consequently to their indulging in restrictive trade
practices, which were detrimental to the consumer and the economy.

Hazari Committee

Different committees were formed to study and suggest changes in the current
economic condition. Hazari committee studied the industrial licensing procedure under
the industries (Development and regulation) Act 1951. As a result of this study
conclusion came out that the licensing has resulted into disproportionate of some big
businesses houses in India.

One more committee was appointed in the year 1960 under the chairmanship of
Mahalanobis to study the distribution and level of income in the country. The report of
this this study concluded that 10% of the population of India is controlling the 40% of
the income. It also suggested that there is a need to collect information about various
aspect of concentration of economic power.

Next in the line was Monopolies Inquiry Commission appointed by the government in
the year 1964 under the chairmanship of K.C. Dasgupta. Its main area of concern was to
study the effects of concentration of economic power in private individuals and the
prevalence of monopolistic and restrictive trade practices in various sector except
agriculture. Report of MIC concluded that few business houses were controlling the
entire market and there was large scale restrictive and trade practices.

As a result of this report MIC drafted a bill to avoid the defects of the above said
defects in the economic system in India namely the concentration of economic power.

Enactment of MRTP Act, 1969

On the basis of the recommendation of MIC bill Parliament enacted the MRTP act 1969
which came into force on 1 June 1970. The Preamble of the act states “An act to provide
that the operation of the economic system does not result in the concentration of
economic power which is detriment, for the control of monopolies, for the prohibition
of monopolistic and restrictive trade practices and for matter connected therewith or
incidental thereto”.
MRTP Act was basically designed to avoid economic concentration of the power in the
Indian economy by exercising surveillance and adopting proper measure in case the
economic concentration proves fatal to the interest of the general public. It ultimate goal
was to achieve promotion of economic growth.

The main objectives of the MRTP Act were to prevent control the monopolies, prohibit
monopolistic trade practices (MTP), restrictive trade practices (RTP) and unfair trade
practices (UTP).

The Monopolistic Trade Practice (MTP) is a result of:

• Unreasonable pricing

• limiting or restricting competition or no free market

• limiting development (technical and economic development by limiting production

and supply)

The Restrictive Trade Practice (RTP) is a result of:

• Refusal to deal with the consumers

• Selective dealings

• Discrimination in pricing scheme

• Restriction of area

• Tying up the sales

MRTP Commission

MRTP Act also provided for the establishment of MRTP Commission as a regulatory
authority to deal with offences falling under the statute. MRTP basically provided for
two kinds of remedies namely behavioral and reformist. Behavioral remedies focuses
on the conduct of the undertakings and bodies which indulge in those practices that
restrictive or unfair in nature. On the other hand reformist doctrine provide that if
MRTP commission, on enquiry comes to conclusion that the undertaking has indulged
either unfair or restrictive trade practices it can direct that undertaking discontinue or
not to repeat the said trade practice.

Amendments in the MRTP Act in 1984

In the year 1978 Government appointed a high powered committee on the companies
and MRTP act under the chairmanship of Rajinder Sachar to review and suggest
changes that are required to be made in the MRTP Act for better administration. It came
out in the report of this committee that the Act does not contain any provision for the
protection of consumers against false or misleading advertisement or other similar
unfair trade practices. Therefore sachar committee came out with a recommendation to
have a separate chapter on unfair trade practices so that there can be easy identification
of these practices.

The Unfair Trade Practice (UTP) was incorporated in the statute after the act was
amended in 1984. This trade practice is a result of:

• Hoarding or destruction of goods

• Promoting false and misleading promotional contests

• Bargain sale

• Misleading Advertisement and False Representation

• Free riding over someone else’s reputation

ECONOMIC REFORMS 1991

In the year 1991 India adopted its new economic policy of LPG (Liberalization,
Privatization and Globalization. Number of changes was introduced in various areas as
industrial licensing, foreign investment, technology imports, government monopolies
and ownership, price and purchase preferences for the sector, reservations for small
scale sector, financial sector etc. By this amendment all the restriction regarding pre
entry and prior approval of the central Government for establishing a new undertaking,
expanding or expanding an existing undertaking, amalgamation, merger and takeover
of undertaking were all deleted from statute.

MRTP was enacted in time when India had the policy of command and control for the
administration of economic activities in the country. As India moved steadily on the
path of reforms comprising of Liberalization, Privatization and Globalization, it did
away with the MRTP Act, 1969 as it was realized that the Act had outlived its utility
and control of monopoly was not appropriate to support the growth aspirations of
more than 1 billion Indians. Indeed, need was felt to promote and sustain competition
in the market place. The then Finance Minister (Shri.Yashwant Sinha) in the budget
speech in 1999 had announced: “The Monopolies and Restrictive Trade Practices Act
has become obsolete in certain areas in the light of international economic
developments relating to competition laws. We need to shift our focus from curbing
monopolies to promoting competition. Government has decided to appoint a
Committee to examine this range of issues and propose a modern Competition Law
suitable for our conditions.”

Accordingly, a High Level Committee on Competition Policy and Law was 6

constituted under chairmanship of Mr. Raghavan. The Committee submitted its report
on 22nd May 2000 recommending replacement of the MRTP Act with a modern
competition law for fostering competition and for eliminating anticompetitive practices
in the economy. After consulting the stakeholders, Competition Bill, 2001 was
introduced in the Parliament which eventually became the Competition Act, 2002.

The purpose of the Competition Act, as stated in its preamble is: “An Act to provide,
keeping in view of the economic development of the country, 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 there with or incidental thereto.”

DIFFERENCE BETWEEN MRTP ACT AND COMPETITION ACT

BASIS OF
MRTP ACT COMPETITION ACT
COMPARISON

Meaning MRTP Act, is the first Competition Act, is

competition law made in implemented to promote and
India, which covers rules and keep up competition in the
regulations relating to unfair economy and ensure freedom of
trade practices. business.

Nature Reformatory Punitive

Dominance Determined by firm's size. Determined by firm's structure.

Focuses on Consumer interest at large Public at large

Offenses against 14 offenses 4 offenses

principle of natural
BASIS OF
MRTP ACT COMPETITION ACT
COMPARISON

justice

Penalty No penalty for offense Offenses are penalized

Objective To control monopolies To promote competition

Agreement Required to be registered. It does not specify any provision

relating to registration of
agreement.

Appointment of By the Central Government By the Committee consisting of

Chairman retired

B. Anti-Competitive Agreements, Vertical and Horizontal Agreements, Predatory

Pricing

ANTICOMPETITIVE AGREEMENTS (Section 3)

Section 3 of the Competition Act states that any agreement which causes or is
likely to cause an appreciable adverse effect (AAE) on competition in India is
deemed anti-competitive. Section 3 (1) of the Competition Act prohibits any
agreement with respect to “production, supply, distribution, storage, and
acquisition or control of goods or services which causes or is likely to cause an
appreciable adverse effect on competition within India”. Although the
Competition Act does not define AAEC and nor is there any thumb rule to
determine when an agreement causes or is likely to cause AAEC, Section 19 (3) of
the Act specifies certain factors for determining AAEC under Section 3: i.
creation of barriers to new entrants in the market; ii. driving existing competitors
out of the market; iii. foreclosure of competition by hindering entry into the
market; iv. accrual of benefits to consumers; v. improvements in production or
distribution of goods or provision of services; promotion of technical, scientific
and economic development by means of production or distribution of goods or
provision of services. The language in section 19(3) states that the CCI shall have
‘due regard to all or any’ of the aforementioned factors. In the adjudications that
have been analyzed by us below, we note that the CCI has examined the
allegations and material on record as against the elements of Section 19(3) of the
Act as set out above. However, in Automobiles Dealers Association v. Global
Automobiles Limited & Anr. 65, CCI held that it would be prudent to examine
an action in the backdrop of all the factors mentioned in Section 19(3). The
Competition Act does not categorize agreements into horizontal or vertical
however the language of Sections 3 (3) and 3 (4) makes it abundantly clear that
the former is aimed at horizontal agreement66 and later at vertical agreements.67
Horizontal agreements relating to activities referred to under Section 3 (3) of the
Competition Act are presumed to have an AAE within India. The Supreme Court
in Sodhi Transport Co. v. State Of U.P. 68 as interpreted ‘shall be presumed’ as a
presumption and not evidence itself, but merely indicative on whom burden of
proof lies. Vertical agreements relating to activities referred to under Section 3(4)
of the Competition Act on the other hand have to be analyzed in accordance with
the rule of reason analysis under the Competition Act. In essence these
arrangements are ant-competitive only if they cause or are likely to cause an
AAEC in India. Section 3(3) of the Competition Act provides that agreements or
a ‘practice carried’ on by enterprises or persons (including cartels) engaged in
trade of identical or similar products are presumed to have AAEC in India if
they:- ￭ Directly or indirectly fix purchase or sale prices; ￭ Limit or control
production, supply, markets, technical development, investments or ￭ provision
of services; ￭ Result in sharing markets or sources of production or provision of
services; ￭ Indulge in bid-rigging or collusive bidding. The first three types of
conducts may include all firms in a market, or a majority of them, coordinating
their business, whether vis-à-vis price, geographic market, or output, to
effectively act like a monopoly and share the monopoly profits accrued from
their collusion. The fourth type of cartelized behavior may involve competitors
collaborating in some way to restrict competition in response to a tender
invitation and might be a combination of all the other practices.

Section 3(4) of the Competition Act provides that any agreement among
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 Section 3(1) if such agreement causes or is likely to cause an
appreciable adverse effect on competition in India. As can be reason, these
agreements are not deemed anti-competitive. Only if they cause or are likely to
cause an AAEC in India will these agreements be in violation of section 3(1) of
the Competition Act. The rule of reason must be applied in this determination.

In general sense an anti-competitive agreement is such an agreement between

enterprises which is against the competition in the market.

Section 3(1) of the Competition Act lays down that no enterprise or association of
enterprises or person or association of persons shall enter into any agreement in respect
of production, supply, distribution, storage, acquisition or control of goods or provision
of services, which causes or is likely to cause an appreciable adverse effect on
competition within India.

Section 3(2) declares any such agreement to be void.

Agreement: Defined under Section 2(b) of the Competition Act,

2002, which includes any:
 Arrangement
 Understanding or
 Action in concert

Whether or not

 in writing;
 intended to be legally enforceable

The definition of the agreement in the Competition Act is not just limited to the
meaning of agreement in the conventional sense which is given under Indian Contract
Act. Legal enforceability of the agreement is not necessary for the competition Act. So
an agreement which is not enforceable in the eyes of law is also covered under the
definition of agreement under the competition act.

Person and person

Person and enterprise Enterprise and enterprise

Person and AOP

AOP and AOP

Person and association of enterprises

Associations of enterprises AOP

association of enterprises

Enterprise (2(h)) A person or a department of the government, Who is, or has been,
Engaged in any activity, Relating to production, storage, supply, distribution,
acquisition or control of articles or goods, or 25 acquisition or control of articles or
goods, or The provision of services, of any kind, or In investment, or in the business of
acquiring, holding, underwriting or dealing with shares, debentures or other securities
or any other body corporate, Either directly or through one or more of its units or
divisions or subsidiaries, Whether such unit or division or subsidiaries is located at the
same place where the enterprise is located or at a different place or at different places,

Exception

Activity of the government relatable to The sovereign functions of the government

Including all activities carried on by the department of the central government dealing
with Atomic Energy, Currency, Defence and Space

Agreement Interpreted “People who combine together to keep up prices do not shout it
from the housetops. They keep it quiet. They make their own arrangements in the cellar
where no one can see. They will not put anything into writing nor even into words. A
nod or wink will do. Parliament as well is aware of this. So it included not only an
‘agreement’ properly so called, but any ‘arrangement’, however informal” Lord
Denning in the case of RRTA v. W.H.Smith and Sons Ltd.,

The word arrangement means a common course of conduct or behavior involving some
sort of communication or exchange of views between the parties each of whom is led to
expect that the other or others will act in a certain way.

Understanding on the other hand is behavioral communication between two or more

parties whereby they adopt a particular course of conduct. In this one of the parties
makes a representation to other party showing his desire to carry out a particular task
in a certain manner so that he can induce other party to agree on the same set of line.

Action in concert is more informal in comparison to understanding or arrangement. It is

a form of coordination between enterprises to fix the price of a commodity or raise the
price at same time.

The competition act 2002 is not defining the anti-competitive agreement rather it is just
providing what kind of agreement will be anti-competitive in nature. It declares certain
kinds of agreement which causes adverse appreciable effect on competition (AAEC) to
be anti-competitive.

Adverse Appreciable Effect on Competition

Although the Competition Act does not define AAEC and nor is there any thumb rule
to determine when an agreement causes or is likely to cause AAEC, Section 19 (3) of the
Act specifies certain factors for determining AAEC.

Section 19 (3) provides the following factors that the CCI must have due regard to
which determining whether an agreement has an AAEC under Section 3:

i. creation of barriers to new entrants in the market;

ii. driving existing competitors out of the market;
iii. foreclosure of competition by hindering entry into the market;
iv. accrual of benefits to consumers;
v. improvements in production or distribution of goods or provision of
services;
vi. Promotion of technical, scientific and economic development by means of
production or distribution of goods or provision of services.

The Competition Act does not categorize agreements into horizontal or vertical
however the language of Sections 3 (3) and 3 (4) makes it abundantly clear that the
former is aimed at horizontal agreement and later at vertical agreements

Horizontal Agreements: Section 3(3) of Competition Act, 2002 envisages horizontal

agreements as agreements between competitors operating at the same level in the
economic process, i.e., enterprises engaged in broadly the same activity. These are the
agreements between producers or between wholesalers or between retailers, dealing in
similar kinds of products. There are four types of Horizontal Agreements stated under
Section 3(3) of the Competition Act:
(a) Agreements regarding Prices: These include all agreements that directly or
indirectly fix the purchase or sale price. (b) Agreements regarding Quantities:
These include agreements aimed at limiting or controlling production, supply,
markets, technical development, investment or provision of services. (c)
Agreements regarding Bids (Collusive Bidding or Bid-Rigging): These include
tenders submitted as a result of any joint activity or agreement. (d) Agreements
regarding Market Sharing: These include agreements for sharing of markets or
sources of production or provision of services by way of allocation of
geographical area of market or type of goods or services or number of customers
in the market or any other similar way.

Vertical Agreements: Section 3(4) of the Competition Act, 2002 deals with
Vertical Agreements. Such agreements are between non-competing undertakings
at different levels of manufacturing and distributing process. These are
agreements between manufacturers of components and manufacturers of
products, between producers and wholesalers or between producers,
wholesalers and retailers. There are five types of Vertical Agreements stated
under Section 3(4) of the said Act: (a) Tie-in Agreement: An agreement between
a seller and a buyer under which the seller agrees to sell a product or service (the
tying product) to the buyer only on the condition that the buyer also purchases a
different (or tied) product from the seller is a Tie-in Agreement. (b) Exclusive
Supply Agreement. (c) Exclusive Distribution Agreement. (d) Refusal to Deal: A
Refusal to Deal may be against another competitor; for example, if one business
refuses to do business with another company, customer or supplier, unless they
agree to cease business with another company, the agreement would be a refusal
to deal. (e) Resale Price Maintenance: Resale Price Maintenance or Vertical Price
Fixing is a practice in which the manufacturers seek to fix the minimum or
maximum retail price of their products. The manufacturer may impose the retail
price on the retailer or it may be a joint agreement between the two parties on
the prices to be charged.

In considering whether an agreement has the effect of undue restraint on trade,

the courts adopts two separate approaches (1) Per se Illegal, that an agreement is
presumed to be unreasonable and therefore illegal and no argument is needed to
justify its reasonableness and (2) Rule of Reason, that an agreement is not
presumed per se unreasonable but is assessed in its legal and economic
perspective to determine whether the restraint imposed is such that it merely
regulates and perhaps, promotes competition or whether it is such that it may
suppress or even destroy the competition. Section 3(3) of the Competition Act
states that Horizontal Agreements are considered Per se Illegal whereas Section
3(4) of the Competition Act states that Rule of Reason is to be applied to Vertical
Agreements.

ABUSE OF DOMINANT POSITION

Abuse of dominance is the other infringement of law which CCI addresses under
section 4 of the Competition Act, 2002.
Section 4 prohibits any enterprise from abusing its dominant position. The term
‘dominant position’ has been defined in the Act as ‘a position of strength,
enjoyed by an enterprise, in the relevant market, in India, which enables it to
operate independently of competitive forces prevailing in the relevant market; or
affect its competitors or consumers or the relevant market in its favour’.
‘….a position of strength enjoyed by an undertaking which enables it to prevent
effective competition being maintained on the relevant market by affording it the
power to behave to an appreciable extent independently of its competitor,
customers and ultimately of its consumers.
The Act defines the relevant market as ‘with the reference to the relevant
product market or the relevant
geographic market or with reference to both the markets’.83 The relevant
geographic market is defined a
‘a market comprising the area in which the conditions of competition for supply
of goods or provision of services or demand of goods or services are distinctly
homogenous and can be distinguished from the conditions prevailing in the
neighboring areas. The Act further provides that the CCI shall determine the
relevant geographic market having due regard to all or any of the following
factors
i. regulatory trade barriers;
ii. local specification requirements;
iii. national procurement policies;
iv. adequate distribution facilities;
v. transport costs;
vi. language;
vii. consumer preferences;
viii. need for secure or regular supplies or rapid after-sales services.
The relevant product market is defined in as ‘a market comprising all those
products or services which are regarded as interchangeable or substitutable by
the consumer, by reason of characteristics of the products or services, their prices
and intended use’.
The Competition Act provides that the CCI shall determine the relevant
geographic market having due regard to all or any of the following factors:
i. physical characteristics or end-use of goods
ii. price of goods or service
iii. consumer preferences
iv. exclusion of in-house production
v. existence of specialized producers
vi. classification of industrial products
The abuse of dominance analysis under the Act starts with the determination of
market, once the relevant market has been determined; the CCI’s next task is to
establish whether the enterprise enjoys a dominant position. It is important to
note here that the Act does not prohibit the mere possession of dominance that
could have been achieved through superior economic performance, innovation
or pure accident but only its abuse. The Act sets out following factors which the
CCI will take into account to establish the dominant position of an enterprise
i. market share of the enterprise; ii. size and resources of the enterprise; iii. size
and importance of the competitors; iv. economic power of the enterprise
including commercial advantages over competitors; v. vertical integration of the
enterprises or sale or service network of such enterprises; vi. dependence of
consumers on the enterprise; vii. monopoly or dominant position whether
acquired as a result of any statute or by virtue of being a Government company
or a public sector undertaking or otherwise; viii. entry barriers including barriers
such as regulatory barriers, financial risk, high capital cost of entry, marketing
entry barriers, technical entry barriers, economies of scale, high cost of
substitutable goods or service for consumers; ix. countervailing buying power; x.
market structure and size of market; xi. social obligations and social costs; xii.
relative advantage, by way of the contribution to the economic development, by
the enterprise enjoying a dominant position having or likely to have an
appreciable adverse effect on competition; xiii. any other factor which the
Commission may consider relevant for the inquiry. Dominance per se is not bad.
It is only when there is an abuse of the dominant position that Section 4 of the
Competition Act is invoked. Thus, once the dominance of an enterprise in the
relevant market is determined the CCI has to establish the abuse of its
dominance by an enterprise. Section 4 (2) sets out a list of activities that shall be
deemed abuse of dominant position. i. anti-competitive practices of imposing
unfair or discriminatory trading conditions or prices or predatory prices, ii.
limiting the supply of goods or services, or a market or technical or scientific
development, denying market access, iii. imposing supplementary obligations
having no connection with the subject of the contract, or iv. using dominance in
one market to enter into or protect another relevant market. The Act also
exempts certain unfair or discriminatory conditions in purchase or sale or
predatory pricing of goods or service from being considered an abuse when such
trading conditions are adopted to meet competition.

DLF Case is the most landmark case in India in the context of success of
Competition Commission of India in addressing abuse of dominance. The
conditions that CCI found abusive in DLF s Belaire Project agreement. Unilateral
changes (changes as proposed or thought about by DLF only) can be made by
the builder without the buyers consent. Buyer s views did not matter at all in the
context of decisions taken by DLF. DLF unilaterally decided to increase the size
of the building from 19 floors to 29. The builder enjoys unilateral right to
increase/decrease super area at his sole discretion without consulting allottees,
who nevertheless are bound to pay additional amounts or accept a reduction in
the area.

Allottees have no exit option except when builder fails to deliver possession
within the agreed time, but even in this case they get refunds without interest,
and that too only after the apartment is sold. So a buyer who was already staying
in a rented house, did not have the scope of getting the earnest deposit back and
negotiate with any other builder till all the flats were sold in the said complex
88in Gurgaon. Punitive penalties can be imposed if you default, but not if the
builder defaults. DLF took crores of rupees from the allottees, even before the
first brick was laid. CCI found the 16 conditions all, being unfair and abusive
In the case of Jupiter Gaming Solutions Pvt. Ltd. v. Government of Goa &
Ors ,  the CCI while determining alleged abuse of dominance by Government of
Goa stated that dominance per se is not bad, but its abuse is bad in Competition
Law in India. CCI further opined that abuse is said to occur when an enterprise
uses its dominant position in the relevant market in an exclusionary or /and an
exploitative manner. In the case the Government’s tender bid of lottery
contained certain conditions which apparently restricted the size of bidders such
as, minimum gross turnover of the participating entity, participating entity
should have experience of at least three years. The CCI held that the
 Government of Goa by imposing such conditions abused its dominant position
denial/restriction of market access to the other parties in the relevant market.
COMBINATION
Broadly, combination under the Act means acquisition of control, shares, voting
rights or assets, acquisition of control by a person over an enterprise where such
person has direct or indirect control over another enterprise engaged in
competing businesses, and mergers and amalgamations between or amongst
enterprises when the combining parties exceed the thresholds set in the Act. The
thresholds are specified in the Act in terms of assets or turnover in India and
abroad.
Entering into a combination which causes or is likely to cause an appreciable
adverse effect on competition within the relevant market in India is prohibited
and such combination shall be void.
The Act also provides for revision of the threshold limits every two years by the
government, in consultation with the Commission, through notification, based
on the changes in Wholesale Price Index (WPI) or fluctuations in exchange rates
of rupee or foreign currencies .
Read section 5 and 6

COMPETITION COMMISSION OF INDIA

Chapter III of the Competition Act, 2002  provides for the establishment of Competition
Commission of India (CCI). According to the Act, the Commission shall comprise of
Chairperson and not less than two and not more than six other members to be
appointed by the Central Government.
The statutory provision further entails that the Chairperson and other members of the
Commission shall possess special knowledge and professional experience of not less
than 15 years in international trade, economics, business, commerce, law, finance,
accountancy etc.

Under the provisions of the Act, the Chairperson and other Members shall be selected
in the manner and in accordance to the Rules prescribed by the Central Government.

Powers and Functions of the Commission

1. To eliminate practices having adverse effect on competition, promote and sustain
competition, protect interests of consumers and ensure freedom of trade by other
participants
2. Inquire into certain agreements and dominant position of enterprise– It provides
that the Commission may either suo moto  or on receipt of any information of
 alleged contravention of Section 3 (prohibits anti-competitive agreements) may
inquire into the same.
3. Inquiry into combinations– Section 20 of the Act entrusts the Commission with
the power to inquire into any information relating to acquisition and determine
whether such combination or acquisition may have an appreciable adverse effect
on competition (AAEC). The CCI can regulate combinations that cross the
threshold limit created by the Competition
4. Act, 2002, as amended by the Competition (Amendment) Act, 2007;25 only if the
notification is made mandatory. If it was voluntary, many companies could have
escaped the review of the CCI in spite of crossing the threshold limit.
5. Reference of an issue by a statutory authority to the Commission– Section 21 of
the Act enumerates that in the course of a proceeding if any issue is raised that any
decision of a statutory authority will be in conflict with the provisions of the
Competition Act, 2002, the statutory authority shall make a reference in this regard
to the Commission.
6. Reference by Commission– Section 21A of the Act provides that if in the course of
proceeding an issue is raised by any party that any decision taken by the
Commission is in contravention of the provisions of Competition Act, whose
authority is entrusted to a statutory authority then the Commission may make a
reference in respect of the issue to the statutory authority.
7. Power to issue interim order– Section 33 of the Act empowers the Commission to
issue interim orders in cases of anti-competitive agreements and abuse of
dominant position, thereby temporarily restraining any party from carrying on
such an act.
8. Competition Advocacy– Section 49 of the Act provides for competition advocacy
and enumerates that the Central or the State Government may while formulating
any policy on Competition or any other matter may make reference to the
Commission for its opinion on possible effect of such policy on Competition.
However, the opinion given by the Commission is not binding on the Central
Government.

COMPAT
The Competition Appellate Tribunal is the adjudicatory body which hears appeals from
order passed by the CCI. The Competition Appellate Tribunal (COMPAT) is
empowered for the purpose of hearing appeals and disposing of appeals against any
directions issued by CCI or directions given by CCI under sub-section (2) and (6) of
Section 26, section 27, section 28, section 31, section 32, section 38, section 39, section 43,
section 43A, section 44, section 45, section 46 of The Competition Act, 2002. The Central
Government has set up the Appellate Tribunal on 15th May, 2009 having its
Headquarter at New Delhi. Hon ble Dr. Justice Arijit Pasayat, former Judge of Supreme
Court, has been appointed as the First Chairperson of the Appellate Tribunal. As far as
the composition of the Competition Appellate Tribunal is concerned, in addition to the
Chairperson, there are two Members to be appointed by the Central Government. The
Chairperson of the Appellate Tribunal requires the following qualification. He has to be
the Judge of the Supreme Court or the Chief Justice of a High Court. A Member of the
Appellate Tribunal should have special knowledge of, and professional experience of
not less than twenty-five years in, competition matters, including competition law and
policy, international trade, economics, business, commerce, law, finance, accountancy,
management, industry, public affairs, administration or in any other matter which in
the opinion of the Central Government, may be useful to the Appellate Tribunal. The
Chairperson and the members of the Appellate Tribunal can hold office for a term of
five years and they are be eligible for re-appointment. The Proviso says that no
Chairperson or other Member of the Appellate Tribunal shall hold office after he has
attained the age of sixty-eight years or sixty-five years respectively. Every appeal shall
be filed within a period of 60 days from the date on which a copy of the direction or
decision or order made by the Competition Commission of India is received and it shall
be in the prescribed form and be accompanied by the prescribed fees. The Appellate
Tribunal may entertain an appeal after the expiry of the period of 60 days if it is
satisfied that there was sufficient cause for not filing it within that period. This rule is
similar to the power of other Tribunals in India.

The COMPAT is bound by procedure laid down by Civil Procedure Code, 1908. It is
empowered to summon and enforce attendance of any person and examine him on
oath, require discovery and production of documents, receiving evidence on affidavit,
issue commission for examining of witnesses, dismiss a representation on default under
the Competition Act, 2002.Although the powers are similar to Civil Court of original
jurisdiction, the technical details are not expected in the Tribunal and strict adherence to
Indian Evidence Act is also not required.

COMPETITION ADVOCACY

Advocacy is often referred to as compliance without enforcement. In many countries,

the competition law or the government policy, assigns an active advocacy role to the
competition authority. In India, an important advocacy mandate is given to the
competition commission under Section 49 of the Competition Act, 2002.

The Competition Act, 2002 extends the mandate of the Competition Commission of
India beyond merely enforcing the law. Competition advocacy creates a culture of
competition. There are many possible valuable roles for competition advocacy,
depending on a country’s legal and economic circumstances.
Competition Commission of India, the Regulatory Authority, in terms of the advocacy
provisions in the Act, is enabled to participate in the formulation of the country’s
economic policies and to participate in the reviewing of laws related to competition at
the instance of the Central Government. Section 49 under Chapter VII of the Act, deals
with competition advocacy.

The Central Government, in formulating a policy on competition including review of

laws related to competition, may make a reference to the Commission for its opinion on
possible effect of such policy on competition and on receipt of such a reference, the
Commission shall, within sixty days of making such reference, give its opinion to the
Central Government, which may hereafter formulate the policy as it deems fit.

The opinion given by the Commission under sub-section (1) of Section 49, shall not be
binding upon the Central Government in formulating such policy. The Commission
shall take suitable measures, as may be prescribed, for the promotion of competition
advocacy, creating awareness and imparting training about competition issues.

The primary objective of the Competition Advocacy is to strengthen the competition

awareness and culture among the market players, thereby encouraging self-compliance
and reducing the need for direct action against erring enterprises.

However, the Commission has not received any reference so far from a ministry under
section 49, but it has on its own offered its opinion in certain cases to the concerned
authorities in the hope that this will help the authorities in designing more market
oriented policies that, if these restrict competition, will do so only to the extent
necessary for meeting the policies’ objectives.

The Competition Commission faces a formidable task in building awareness and

support for competition policy among the citizens and the business community. The
Commission, after its establishment, has been undertaking work relating to competition
advocacy and institutional building.

The Commission has also brought out competition advocacy literature for wide
distribution. It has initiated competition assessment studies through reputed
institutions in various areas of the economy. The Commission has arranged training
programs for its staff and other stakeholders within and outside the country. It has been
interacting with academic institutions for inclusion of study of competition policy and
law in the curriculum for law, economics, and management courses.

In a country where the competition culture is relatively weak, competition advocacy

acquires a great significance in creating general awareness about the benefits of
competition and the role of competition law, as well as in influencing government
policy in a more pro-competition direction.
The Commission will therefore be assuming the role of competition advocate, acting
pro-actively to bring about Government policies that lower barriers to entry, that
promote deregulation and trade liberalisation and that promote competition in the
market place