Competitions Act 2002

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Competition? Can it been seen?
What are the benefits?
 Capitalism is the order of the Day
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 In a laissez-faire economy…
 the invisible hands of the market…
 Comment: Capitalism thrives on
Competition
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 ‘Lack’ of government intervention?

 production owned by private firms?
 prices of goods and services determined
by market forces?
 brings in efficiency and economic
growth?
 can give rise to monopoly power and
inequality ?
 Goals of Competition?
 “Competition” in an economy :
▪ Promotes efficiency?
▪ Enables goods and services of good quality
to be provided to consumers at lower prices?
▪ Creates a level playing field for competitors?
▪ Leads to innovation and creates
opportunities to new players to enter the
market?
 GOALS
of
Competition Law

Prevent Prohibit Supervise

Anti Competitive Abuse of Dominant Mergers &
Agreements Power Acquisitions
 Anti-competitive Practices

 Price fixing
Agreements between players in the same market

 Collusion and horizontal agreements.

i.e. Cartels.
Manufacturer

 Vertical agreements
Distributor
 Abuse of Dominant Power
 ‘Dominant’ when it has captured over 50% of the
market share?

 Various tests are used by Competition Authorities

to ascertain the ‘relevant market’. In the EU a
test called a SSNIP Test is used. (Small but
Significant Non-transitory Increase in Price)

 An ‘abuse of dominant power’ occurs for

instance, when a dominant business influences
the price by reducing supply or increasing price.
 Why Supervision of Mergers?
 When businesses merge to gain advantage of
economies of scale it tends to reduce competitors in
the relevant market and can result in the merged
business having dominance in the ‘relevant market’.

 This may lead to an abuse of dominance and

suppression of consumer rights.
 Predatory Pricing ?

 Predatory Pricing
Fixes a low price to get a hold
on the market and to drive
away other competitors.
Thereafter increases price

• What about Using

“Standards” as a
shield to block new
entrants
Opening Paragraph of CCI Act 2002
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 aims to prevent practices having

adverse effect on competition,
 to promote and sustain competition
in Indian markets,
 to protect the interests of consumers
and
 to ensure freedom of trade carried on
by other participants in markets, in India
 So, what are the 4 objectives…
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 Prevent Adverse Affect on Trade

 Promotion/sustenance of competition
 Protection of Consumers’ interests
 Freedom of Trade
 Five Dimensions of the Act
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◆ Replacement of MRTP 1969

◆ Anti-competitive Agreements [Sec. 3]
◆ Abuse of Dominance [Sec. 4]
◆ Combinations, include acquisition of shares, voting
rights, assets/control, mergers, amalgamations and
takeovers
◆ Advocacy - maximum impact with least intervention
◆ Advisory- to preempt and tame anti competitive public
action
 Latest developments
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 Competition assessment of legislations

by CCI through experts;
 Dawn raid by DG - Competition
Commission;
 E-filing at the CCI;
 Power to review its own orders in
limited circumstances – Eg. Google in
Delhi High court
CCI Levies Penalty Of 52 Crore On BCCI For
Abuse Of Dominant Position ...
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The CCI found that the BCCI
had violated Section 4(1) read
with Section 4(2)(c) (abusing
domination position by
denying market access) of the
Competition Act, 2002 by
assuring broadcasters of
Indian Premier League (IPL)
that BCCI shall not organize,
sanction, recognize, or
support another professional
domestic Indian T20
competition that is
competitive to IPL, for a
sustained period of ten
years....
CCI Slaps Penalty on Chemists and Druggists Assn of
Baroda (CDAB), Federation of Gujarat Chemists and
Druggists Association...
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Inspite of earlier indictment,

CDAB, through its practices, has
continued to limit and control
the supply of drugs and
medicines in the market by
mandating ‘no objection
certificate’ prior to the
appointment of stockists and
payment of ‘product
information service’ charges
prior to introduction of new
products in the market by
pharmaceutical companies...
 Reliance Jio’s Free Services Not Anti-
Competitive: Competition Commission Of
India...
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“The Commission notes that providing free

services cannot by itself raise competition
concerns unless the same is offered by a
dominant enterprise and shown to be
tainted with an anti-competitive objective
of excluding competition/ competitors,
which does not seem to be the case in the
instant matter as the relevant market is
characterized by the presence of
entrenched players with sustained
business presence and financial strength...

…. short-term business strategy of an

entrant to penetrate the market and
establish its identity cannot be considered
to be anti-competitive in nature and as
such cannot be a subject matter of
investigation under the Act….
 All-India Film Employees Confederation,
Affiliates Found Engaging in Anti-
Competitive18Practices...

The Competition Commission of

India, in the case of Vipul A Shah
vs All India Film Employees
Confederation, has found the All-
India Film Employees
Confederation (AIFEC), Federation
of Western India Cine Employees
(FWICE) & its affiliates to be in
contravention of provisions of
Section 3 of the Competition Act,
2002, which prohibits anti-
competitive agreements...
 CCI slaps fine on Eveready, Nippo &
Panasonic for colluding to fix prices of zinc-
carbon dry cell19battery in India

The Competition Commission of

India (‘CCI’) passed Final Order
imposing penalty on three leading
Indian Zinc-Carbon Dry Cell
Battery manufacturers–Eveready
Industries India Ltd. (‘Eveready’),
Indo National Ltd. (‘Nippo’),
Panasonic Energy India Co. Ltd.
(‘Panasonic’) and their association
AIDCM (Association of Indian Dry
Cell Manufacturers) for colluding
to fix prices of zinc-carbon dry
cell battery in India.
MRTP v. Competitions Act
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Risks of Infringement of Law

 Monetary penalties including

compensation claims
 Loss of reputation

 Delinquent Officer deemed guilty person

 Recurrence triggers criminal proceedings

 Potential loss of business

 Depletion of shareholder value

 Relevant Market
 ‘RelevantMarket’ includes relevant product
market and relevant geographic market.

Relevant Product Market – comprises all those

products or services which are regarded as
interchangeable or substitutable by the
consumer. In the case
United Brands v. Commission – Case where it was held
that the banana constitutes a separate market

Relevant Geographic Market – refers to market

comprising the area in which the conditions of
competition are distinctly homogenous.
 Horizontal and Vertical
Agreements
Raw Material Raw Material Raw Material
Supplier Supplier Supplier

Manufacturer Manufacturer Manufacturer

Wholesaler Wholesaler Wholesaler

Retailer Retailer Retailer

 Agreements amongst competitors
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Agreements between enterprises or persons

engaged in similar trade of goods or provision
of services.
Agreements including cartels that:
(a) fix prices,
(b) limit or control production,
(c) allocates markets or customers, and
(d) Rig bids/collusive biddings are presumed to
have an appreciable adverse effect on competition
 Examples of Horizontal
Agreements
 Illustrative cases:
 Cartels- engaged in same or similar
products- Cement,
 Bid rigging/collusive bidding- LPG
Cylinders, Phosphorus, Explosive
suppliers
 Market Allocation
 Limiting of production, supplies

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 The Leniency Provision
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 The Act provides for imposition of lesser penalty by

the CCI where a person makes FULL, TRUE and
VITAL disclosure of a cartel to the CCI;
 The Leniency System is targeted at cartel participants
and seeks to induce participants to break rank
and turn approver against other cartel
members.
 A first, second and third applicants can avail the benefit
of a reduction in penalty of up to 100% or 50% or
30% respectively.
 Confidentiality is the bed rock of an effective leniency
regime.
e.g. DISCUSS ABOUT PRICE INCREASE, TIMING
OF PRICE INCREASE WITH COMPETITORS
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Retail price is too

cheap. Why don’t I agree. Let’s
we increase the implement the
wholesale price price increase
by 5%? next month.

Competitors Sales
ABC Sales Person
Person
 e.g. DISCUSS ABOUT
CUSTOMERS AND TERRITORY
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WITH COMPETITORS
Okay. East district is
West district of A
our territory.
city is our territory.
Promise to us that
Do not sell your
you will not sell
products in our
your products at our
territory.
territory.

ABC Sales Person Competitors Sales Person

 Contact with former boss
(Fictional Case)
Long time no see. I did not
know you were working to
get this business for Philips. ?
Why don’t we keep in touch
and exchange information?

Ex ABC Sales sales person of

Person working at ABC
Competitor

What should you say? Think of a script.

 Answer
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 " I agree. Give me your contact details so that we can

exchange information.”

 " It is really nice to see you again. Why don’t we go out

for dinner tonight. There are lots of things that we
should talk.”

 Leave the place after saying "It is nice meeting you

again. But we are competitors now, and competing with
each other for this deal. It is against our company’s
policy to interact with competitors. I am afraid I will
have to go.”
 Trade Associations
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 What is the role of a trade association?

 What are actions that may not be
carried out by a trade association?
 Why should a trade association not
facilitate the exchange of competitive
sensitive information.
 Why are office bearers held liable for
infringement by a trade body?
 Vertical Agreements (Rule of Reason)
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 Agreements between enterprises at different stages or levels

of the production chain.
 Such agreements include
(a) tie-ins
(b) exclusive supply
(c) exclusive distribution
(d) refusal to deal
(e) resale price maintenance
 Less sensitive than the Horizontal Agreement.
 Abuse of Dominant
Position

 The Act does not prohibit dominant position – it only frowns upon
the ‘abuse’ thereof.

 Dominant Position refers to a position of strength enjoyed by an

enterprise or group 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
favor.
▪ ‘Group’ is open ended.
 Types of Abuses
 Exploitative Abuses– i.e., conduct which results in exploitation of others
in the value chain, for e.g.,
▪ imposition of unfair or discriminatory conditions
▪ imposition of unfair or discriminatory prices e.g., predatory pricing.
 Exclusionary Abuses – conduct which interferes with the competitive
process, for e.g.,
▪ Making conclusion of contract subject to acceptance of supplementary
obligations
▪ Denial of market access
▪ Limiting production of goods, provision of services; scientific development;
▪ Using dominance in one relevant market to enter into or protect other
relevant market.
 Illustrative cases: DLF , Coal India.
 How is an inquiry
initiated? 20

❑The CCI may institute inquiry in the wake of:-

▪ Filing of Information by any person or consumer or association of
consumer/trade; or

▪ Suo Motu takes cognizance; or

▪ Filing of a reference by State/Statutory authority
❑CCI may pass an order
▪ directing the DG to investigate; or
▪ pass an order dismissing the matter
 Powers of the DG
 Requisition of information from the parties

 Requisition of information from ex-employees, distributors etc.

 The DG can summon and record evidence during investigation.

 DG can exercise the powers of ‘Search and Seizure’ (“Dawn Raids”).

 DG are vested with the powers of a Civil Court to aid Inquiry/Investigations

 A word of caution in
communication 36

 Email, SMS, FAX, Communication in any e-mode are

admissible evidence- irretrievable once clicked/sent.
 Skillful communication is imperative.
 Do not sound guilty .
 Do not use expression like “destroy after reading”.
 Avoid the exaggerated use of “power” words(e.g. “we’ll
destroy them”, “we will nail them to the wall”)
 Avoid giving the false impression that a customer is being
given favored treatment( e.g. “None of our other
customers is getting this special discount”).
 A word of caution in
communication 37

 Do not use terms such as “control”, “power” or

“dominance” when referring to the company’s present
or future position;
 Do not use vivid words or images suggesting combat
(“crush”, “destroy”, “block access”, “conquer”,
“dominate”) to describe the company’s marketing
practices.
 Do not use the term “market” to refer to parts of a
nation. For cities, regions, and other limited geographic
areas, use terms such as “area", "region” or the like.
Why do we need a CCP (Competition
Compliance Program?)
 Breach can lead to - substantial fines linked
with consolidated profits or turnover,
 Individuals involved can be subject to penal
sanctions;
 Detection possibilities heightened- DG vested
with power of Civil Court, power of search and
seizures, MoUs with overseas authorities Growing
vigilance by NGOs, whistle blowers, media, etc;
 Introduction of leniency programmes, growing
cases of breach/cheating by members of cartels.
 Why do we need a CCP (Cont.)
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 No indemnification of fines imposed on

individuals in case violation of the law is found to
be “intentional and deliberate”;
 Investigation/inquiry are disruptive, costly
and seriously damage the reputation and
goodwill of the enterprise;
 Ever increasing emphasis on convergence and
harmonization of competition laws and
principles;
 Competition regimes are being increasingly
modernized.
 Benefits of having a CCP
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 Reduces the risk of contraventions and its

consequences;
 CCP are generally inexpensive vis-à-vis penalties
which can be imposed;
 Helps in early detection of contraventions;
 Early detection reduces quantum of penalties as
well as compensation to third parties;
 Ensure compliance with the orders passed by the
Commission;
 Action can be taken against delinquent employees
who have contravened or have been party to
contravention.
 Benefits of having a CCP
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 Suggest appropriate action in case being a

victim of anti-competitive practice of others;
 Combinations are strategic decisions-
disapproval causes loss to reputation-CCP
can draw up planned action;
 Facilitate in eliminating/taming anti-
competitive practice emanating from public
action;
 Ensure compliance with overseas
competition law in case export
business/overseas acquisition.
Benefits of having a CCP (cont.)
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CCP – A Mitigating Factor:

 In US – a penalty can be reduced by more than 80%;
 In Australia – a relevant factor in assessing pecuniary
penalty;
 In Netherlands – a relevant factor provided no senior
executive is involved in the violation;
 In Canada – a mitigating conduct for sentencing
purposes provided contravention has been
terminated soon after it became known; and
And…
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The price of antitrust liability continues to

increase;
 Cost of compliance is miniscule qua penalties
 Prudence suggests launching of effective and
comprehensive CCP.

You can maximise the chances of your company

staying on the right side of the law without having to
rely on advice from Specialist Anti-Trust Lawyers
every day.
 Role of Company Secretary in
Modernised competition regime
 Compliance officer

 Can represent before the CCI & DG

 Authorized to do merger filings

 Can facilitate in creating right opinion in

taming the rigor of anti competitive law or
policy

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 Enforcement of Competition Law
in established competition
law regimes
• Competition Laws have been enacted in
over 100 countries across the globe.
• Most of these have taken US Anti trust
laws or the EU Competition laws as
examples.
• The main areas on which EU Competition
Laws focus is referred to as the ‘Three
Pillars of EU Competition Laws’.
 Dawn Raids under EU Competition Law

Dawn raids are used by the Commission in its fight against cartels and other
anticompetitive behaviour. A “dawn raid”, is an unannounced on-the-
spot investigation. This includes:
1. IT searches – documents stored inside computers, on servers outside, etc. (
forensic searches recover deleted documents).
2. Houses of suspected executives are searched.

If the search cannot be completed in one day, premises are sealed. (In 2008 a
fine of Euro 38M imposed on E.on Energie for breaking a seal. In the Sony
investigation in 2006, an additional 30% fine because an employee refused to
answer a question.)
 Indian Competition Law
 Indian Competition Law is contained in the
Competition Act of 2002, implemented in 3 phases
and fully enforced in 2006.

 The Act established a Competition Commission of

India, which has power to investigate, call
witnesses, impose fines and jail terms.

 Sec. 3 prevents practices which cause an

appreciable adverse effect on competition in India.
The Commission has power to investigate anti
competitive agreements, dominant positions or a
combination within or outside India, if it causes an
appreciable adverse effect on competition in India.
▪ The Indian Commission considers the following
as ‘anti competitive’:

▪ Agreement to limit production and/or supply;

▪ agreement to allocate markets;
▪ agreement to fix price;
▪ bid rigging or collusive bidding;
▪ conditional purchase/ sale (tie-in arrangement);
▪ exclusive supply / distribution arrangement;
▪ resale price maintenance; and
▪ refusal to deal.

▪ The Commission can impose a jail term not exceeding one year, in
addition to a penalty not exceeding Indian Rupees Ten Lakhs

▪ From 2006 to September 2010, India’s Competition Commission has

handled 118 cases and dismissed 24.
Competition in an economy
leads to ‘innovation’?
 Foreign Direct Investment (FDI)
is the investment of
foreign assets into the
domestic structures, Efficiency
FDI equipment and Spill
organizations over
including transfer of
Technology -
‘Greenfield Investment’

Leaves at the
Investment ‘First sign of
purely in Trouble’
shares
 What attracts and deters FDI?
Attracts FDI Deters FDI
• Low tax regime
• Lack of transparency in decision making
• Tax holidays
• Corruption
• Political stability
• Bureaucracy and slow decision making
• Good infrastructure
• Protectionism of local industries
• Law enforcement
• Irregular enforcement of Competition Laws
• Population of a country
or lack of proper Competition policies
(huge customer base)
• Relative economic stability
Competition policy is
a critical accompaniment to
liberalization in terms of the
removal of restrictions and
establishment of standards of
treatment for foreign firms.
 How do Competition Policies
impact on FDI?
• Product markets – restrictive business practices impede
FDI connected with production & distribution of goods

• Service markets – barriers to entry discourage FDI

• Firms interacting horizontally can affect the investment

decision of a potential entrant

• Vertical agreements that impact on organization and

distribution of final product can deter FDI

• Government policies – incumbent firms may use

regulatory requirements to prevent entry to new entrants.
 Relationship between
Competition Law regimes and FDI
• EU is the world’s leading host and source of FDI

Strives to achieve a ‘single market’ status and thus

assures Investors of a open, properly and fairly
regulated business environment and applies
“Principles of Non Discrimination” to both foreigners
and local investors by rigorously applying its
Competition Law regime

• India is the 2nd largest inward FDI receiving country in Asia next to China

Indian Competition Policy took a great stride forward with the

country’s open economic policies in 1999. Many of the entry barriers
have been removed. Has a sound competition law regime
and an effective Competition Commission.