COMPETITON LAW AND ITS POLICY IN INDIA

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‘A situation in a market in which firms or sellers independently strive for buyers patronage in order to achieve a particular business objective, for example profit sales or market share’ this definition was giving by World Bank in the year 1999 while defining competition. Competition is a situation in market, in which sellers independently strive for buyer’s patronage to achieve business objectives. In the year 2002 Competition Law in India ensuring the sustainability of competition in the market. It promotes the competition between the enterprises.

Competition law refers to the framework of rules and regulations designed to foster the competitive environment in a national economy. It consists of measures intended to promote a more competitive environment as well as enactments designed to prevent a reduction in competition. Competition policy, on the other hand, broadly refers to all laws, government policies and regulations aimed at establishing competition and maintaining the same. It includes measures intended to promote, advance and ensure competitive market conditions by the removal of control, as well as to redress anticompetitive results of public and private restrictive practices1.

  1. 4 Republic of the Philippines, Tarrif Commission, Competition Law and Policy available at http://www.tariffcommission.gov.ph/competit.html

The main objectives of the act are-

  • Promoting the interest of the consumers.
  • Ensuring freedom of trade.
  • Preventing practices that are having adverse effect on competition.
  • Promoting and sustaining competition in the market.
  • Facilitating economic liberalization. Deregulation and reduction of external trade barriers.

Since the market can suffer from failures which can give an impact on economic efficiency and consumer failures hence this lead to arises the need of competition law. The main motive of the act is to promote the competition in the Indian market so that the interests of the customers can be protected and to ensure freedom of trade carried on by participants in the Indian market.

Competition Law and Competition Policy are two distinct concepts to each other. Competition Policy is aimed ensuring that competition is not restricted undermined it is a structures government have in place for the regulations of markets and monopolies. It includes reforms in certain policy-

  • Industrial Policy
  • Trade Policy
  • Privatization
  • Economic Regulation
  • State Aids
  • Labour Policy
  • Other such policy

INDUSTRIAL POLICY

This policy has to address and reform licensing requirements, restrictions on capacities, or on a foreign technology tie ups, guidelines on location of industries, reservation for small scale industries etc.

TRADE POLICY

It has an important implication for development in the market of competition. For example, reducing tariffs, removal of quotas/physical controls, investment controls, conditions relating to local content.

PRIVATIZATION

Important element of competition policy is privatization of state owned enterprises. State monopoly is not replaced by private monopoly. This thing has to be taken care of.

ECONOMIC REGULATION

There is new legislation and regulation to promote competition and to bring about restructuring of major industrial sectors is essential. Legislation is to aim at separating monopoly elements from potentially competitive activities and the regulatory functions from commercial functions also creating several entities through restructuring of essential competition activities and to create a competitive environment. Electricity sector, Telecommunication sector, ports are the few examples of it.

STATE AIDS

Subsidies, Tax rebates, Preferential Loans, Capital Injunction are the examples of several state aids create unequal operating conditions for businesses. Experts suggest that such policy measures rarely have successful results and destroy incentives for firm to become efficient.

In the case, Arshiya Rail Infrastructure Limited v. Ministry of Railways & Others the CCI broadly explained the concept of relevant markets. In this it was held that the concept of relevant market in competition law is only a tool to determine the boundaries of the competition between enterprises. The case of Belaire Owners Association v. DLF Limited, section 4 of the competition act was being analysed by the competition commission of India. In this it explained the ability of an undertaking to operate independently of the competitive forces generated by its competitors, meaning that when an enterprise can freely adopt its price and non-price strategy without affecting its demand and creating a marketplace that deters the entry of new competition, in terms of rival products.

MONOPOLIES AND RESTRICTIVE TRADE PRACTICES

(MRTP) ACT 1969

On 1st June 1970 MRTP Act came into the force. The sole purpose of the act for enacting was- “Achieving the highest possible production with least damage to people at large while securing maximum benefit”1.

The principles and objectives of the MRTP Act are-

  • Preventing of concentration of economic power to the common detriment.
  • Controlling of monopolistic, restrictive and unfair trade practices which are prejudicial to public interest.
  • Regulating restrictive trade practices.

Monopolistic trade practice is being defined under section 2(I) p whereas investigation of such practices by MRTP commission is being defined under section 31.  In this it includes, preventing and reducing competition, limiting the technical development and deteriorating product quality by adopting unfair and deceptive trade practices.

When unfair trade method or practice is been adopted for the purpose of promoting the sale, use or supply of any good or services is called unfair trade practices. 

Unfair trade misleading includes, misleading and false representation, representing that goods or service and seller having a sponsorship approval which they do not have, falsely representing that goods and services are of a particular standard quality grade composition.

In the case Pfizer Inc. v/s Government of India2, the United States Supreme Court has confirmed that foreign Governments damaged by restrictive business practices of United States enterprises contravening United States Restrictive Business Practices Legislation are entitled to sue for treble damages. In Mithilesh Kumari’s case3, the Supreme Court ruled “where a particular enactment or amendment is the result of the recommendation of the Law Commission of India, it may be permissible to refer to the relevant report as an external aid of construction.”

  • 76-749-11-1-78
  • AIR 1989 SC 1247

In the section 2(o) of the act Restrictive Trade Practices is been defined as to maximizing profit and market power as traders tend to attempt to indulge in certain trade practices which obstruct the flow of capital into the stream of production the flow of capital into the stream of production also it may bring manipulation of prices or conditions delivery or affect the flow of supplies in the market so as to impose unjustified costs.  

Restrictive trade practice, as defined in Section 2 b (nnn) of Consumer Protection 1986 as under:-

“restrictive trade practice means a trade practice which tends to bring about manipulation of price or its conditions of delivery or to affect flow of supplied in the market relating to goods or service in such a manner as to impose on the consumers unjustified costs or restrictions and shall include –

a) Delay beyond the period agreed to by a trader in supply of such goods or in providing the services which has led or is likely to lead to rise in the price;

b) Any trade practice which requires a consumer to buy, hire or avail of any goods or, as the case may be, services as condition precedent to buying, hiring or availing of other goods or services”

In the case, Dattaraj Nathuji Thaware v/s State of Maharashtra4 ,  the Supreme Court held as follows:

“Public Interest litigation is a weapon which has to be used with great care and circumspection and the judiciary has to be extremely careful to see that behind the beautiful veil of public interest, an ugly private malice, vested interest and/or publicity-seeking is not lurking. It is to be used as an effective weapon in the armoury of law for delivering social justice to citizens. The attractive brand name of public interest litigation should not be used for suspicious products of mischief. It should be aimed at redressal of genuine public wrong or public injury and not be publicity-oriented or founded on personal vendetta. As indicated above, court must be careful to see that a body of persons or member of the public, who approaches the court is acting bona fide and not for personal gain or private motive or political motivation or other oblique considerations. The court must not allow its process to be abused for oblique considerations by masked phantoms who monitor at times from behind. Some persons with vested interest indulge in the pastime of meddling with judicial process either by force of habit or from improper motives, and try to bargain for a good deal as well as to enrich themselves. Often they are actuated by a desire to win notoreity or cheap popularity. The petitions of such busybodies deserve to be thrown out by rejection at the threshold, and in appropriate cases with exemplary costs.

The Council for Public Interest Law set up by the Ford Foundation in USA defined “public interest litigation” in its Report of Public Interest Law, USA, 1976 as follows:

‘Public interest law is the name that has recently been given to efforts to provide legal representation to previously unrepresented groups and interests. Such efforts have been undertaken in the recognition that ordinary marketplace for legal services fails to provide such services to significant segments of the population and to significant interests. Such groups and interests include the proper environmentalists, consumers, racial and ethnic minorities and others’.”

  • (2005) 1 S.C.C. 590

ABUSE OF DOMINANT POSITION

Under section 7 of the competition act an abuse may, in particular, consist in mentioned below-

  • Directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions
  • Limiting production, markets or technical development to the prejudice of consumers
  • Applying dissimilar conditions to equivalent transactions with other trading partners, thereby placing them at a competitive disadvantage
  • Making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connections with the subject of such contracts.

Factors determining the dominant position-

  • A market share
  • The size and assets of the undertaking
  • Size and significance of contenders or competitors
  • The financial intensity of the undertaking.
  • A reliance on customers on the undertaking or undertaking.
  • A vertical combination or integration.
  • A source of dominant position viz. regardless of whether acquired because of resolution or statute and so on.
  • Social expenses and commitments and commitment of big business getting a charge out of the prevailing situation to financial improvement.
  • Market structure and size of the market.

This abuse occurs when a dominant firm in a market, or a dominant group of firms, engages in conduct that is intended to eliminate or discipline a competitor or to deter future entry by new competitors, with the result that competition is prevented or lessened substantially. Section 78 and 79 of the competition act deals with this provision where it establish the bounds of legitimate competitive behavior and provide for corrective action when firms engage in anti‑competitive activities that damage competitors and also to maintain their market power.

Section 79(1) lays down three essentials elements which to be found in existence by competition tribunal to grant orders, which are as follows-

  • That one or more persons substantially or completely control, throughout Canada or any area thereof, a class or species of business
  • That person or these persons have engaged or are engaging in a practice of anti‑competitive acts
  • That the practice has had, is having or is likely to have the effect of preventing or lessening competition substantially in a market.

Relevant Market

Section 4 of the (Indian) Competition Act 2002 (the Act) prohibits enterprises holding a dominant position in a relevant market from abusing such a position. Relevant Market is been categorised as “Relevant Market Product” and “Relevant Market Geography”.

Relevant Market Product

This market comprises all those products and services that are either interchangeable or substituted by a consumer. Factors which determines the relevant market product are as follows-

  • Physical characteristics or end-use of goods.
  • Price of goods or services.
  • Consumer preference
  • Exclusion of in-house producers.
  • Existence of specialized producers.
  • Classification of Industrial products.

As per the Competition Commission, of India the relevant product market is to be looked at from both demand and supply perspective based on the characteristics of the product, its price and intended use5 and a cricket match couldn’t be held to be substitutable by some other game dependent on neither qualities nor the intention of the person watching the cricket match6.

  • Atos Worldline v Verifoneindia, Case No. 56 of 2012
  • Surinder Singh Barmi v The Board of Control for Cricket in India (BCCI), Case No. 61/2010

Relevant Geographic Market

The definition of a geographic market is the homogeneity of competition parameters across different geographical areas. A market which comprises the area where the conditions of competitions for supply or demand of goods or services are distinctly homogeneous.

Factors which determines the relevant geographic market are as follows-

  • National procurement policies.
  • Regulatory trade barriers.
  • Transport cost.
  • Local specialization requirements.
  • Adequate distribution facilities.
  • Consumer preference.
  • Need for secure or regular supplies or rapid after-sales service.

There are territories or areas where demand and supply of products of administrations can be said to be homogenous and discernible from markets in neighbouring regions7. Naturally, a few factors at that point, as regulatory trade barriers, local detail necessities, national acquirement approaches, satisfactory conveyance offices, transport costs go under the domain of thought. Consequently, if every such factor were uniform all through the nation versus an item, the entire nation would be the relevant geological region8.

  • Bijaya Poddar v. Coal India Ltd, Case No. 59 of 2013
  • Atos Worldline v Verifoneindia, Case No. 56 of 2012

Powers of the Competition Commission of India.

Under section 27 of the competition act, competition commission of India may pass inter-alia any or the entirety of the following orders-

  • Directing the parties to suspend and not to reappear into such an understanding
  • Directing the endeavour or enterprise concerned to alter or change the agreement.
  • Directing the enterprise concerned to submit to such different requests as the Commission may pass and conform to the bearings, including payment of expenses.
  • Passing such different orders or issues such directions as it might esteem fit.
  • Forcing such punishment as it might consider fit. The punishment can be up to 10% of the normal turnover for the last three preceding financial years of endless supply of such people or ventures which are parties to bid-rigging or collusive bidding.

Under section 33 of the act, in the abuse of dominant position during the pendency of an investigation, the commission may incidentally control any party from duration with the alleged offending act until the completion of the order or until further order, without giving out to such gathering, where it esteems fundamental or necessary. 

ANTI-COMPETITIVE AGREEMENT

Under section 3(1) of the competition act prevents any enterprise or association from entering into any agreement which causes or is likely to cause an appreciable adverse effect on competition (AAEC) within India. In the act it is provided that such agreements includes cartels, which are-

  • Directly or indirectly determines purchase or sale prices
  • Limits or controls production, supply
  • Shares the market or source of production
  • Directly or indirectly results in bid rigging or collusive bidding

Under this there are two types of agreement, Horizontal Agreement and Vertical agreement. Horizontal agreements are placed in a special category and are subject to the adverse presumption of being anti-competitive which is also called as “per se” rule.

In the case NK Natural Foods Pvt. Ltd. v. Akshaya Pvt. Ltd.9, the Competition Commission held that, agreements under Section 3 are held anti-competitive only if they create market distortions by causing an appreciable adverse effect on competition either through concerted action of horizontally placed enterprises or through agreement between or among vertically placed enterprises.

VERTICAL AGREEMENTS

These are those agreements in which two or more enterprises operating at different levels of production are entered in together. Types of vertical agreements are as follows-

  • Exclusive supply agreement & refusal to deal
  • Resale price maintenance
  • Tie-in-arrangements
  • Exclusive distribution agreement
  • Case No. 74 of 2013.

TIE-IN ARRANGEMENTS

This agreement includes any arrangement requiring a purchaser of goods as a requirement of such purchase to purchase some other kinds of goods. It is also referred to as tying agreement, tying arrangement, tie-in sale, tie-up sale, or clubbed sale. Under Section 3(4) explanation of the competition act, tie-in arrangement includes any arrangement requiring a purchaser of goods, as a condition of such purchase, to purchase some other goods. The product or service that is obtain by the buyer as per as requirement is called the tying product or service and the product that is compelled or forced to the buyer is called the tied product.

A tie-in agreement under section 3(4)(a) has to tested for its actual or probable adverse effect on the competition, this being the only determining factor as per the instant provision, to be calculated in light of the enumerations made under section 19(3) of the Act. It should be observed that as per the C.C.I., vertical agreements as under section 3(4) do not include consumers since, a manufacturer/service provider and the consumer cannot ever be said to be part of any “production chain” or even operating in “different markets” because a consumer does not participate in production. However, the same is not without dissent.

In the case9, the C.C.I. went with the scheme of section 3 in general and section 3(4) in particular, at the point when it recognize the differentiation with respect to the treatment to be met out to agreement under 3(3) and 3(4) going on to further accept that ‘Section 3(3) categories are examples of agreements which are considered in violation of Section 3(1) and the Commission, under law, has to presume that these agreements have an appreciable adverse effect on competition’ and in case of an agreement of the nature under Section 3(4), it is to be proof that agreement is likely to cause an appreciable adverse effect on competition in India respectively.

This was with no reference to ‘dominance’ being a prerequisite for a claim of anti-competitiveness under section 3.

  1. Ramakant Kini v Dr. L.H. Hiranandani Hospital, case no.39 of 20212.

HORIZONTAL AGREEMENT

Under section 2 (c) of the Competition Act ‘Cartel’ is defined which includes association of producers, sellers, distributors, traders or services providers who, by agreement amongst themselves limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services.

The agreement between enterprises not to compete on price, product or customer is called as Cartel. The objective of cartel is to raise price above competitive levels, resulting in injury to consumers and to economy. For the consumers, cartelization results in higher prices, poor quality and less choices of goods or services.

Types of Horizontal Agreement in Anti-Competitive Agreement

  • The market or source of production or provision of services being shared by way of allocation of geographical area of market, or type of services or the number of customers in the market,
  • Directly or indirectly results in bid rigging or collusive bidding, bid rigging is defined in the explanation of section 3(3) as any agreement that has the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding.
  • Agreements which directly or indirectly determines the purchase or sale price. Price fixing either directly or indirectly is prohibited. Agreements that are entered into with the sole purpose of defeating competition through fixing prices are prohibited as it is not in the best interest of the consumer.
  • Limit or control production, supply, markets, technical development, investment or provision or services. In this any agreement that stipulates the amount of production or restricts the market where the goods or services are to be prohibited.

In the case Shri Shamsher Kataria v. Honda Siel Cars India Ltd. & Ors,

The Commission held that such agreements were in the nature of exclusive supply, exclusive distribution agreements and refusal to deal under Section 3(4) of the Act and hence the Commission had to determine whether such agreements would have an AAEC in India. the impugned agreements were in contravention of Section 3 of the Act and remarked that the network of such agreements allowed the OEMs to become monopolistic players in the aftermarkets for their model of cars, create entry barriers and foreclose competition from the independent service providers. Also The Commission further stated that such a distribution structure allowed the OEMs to seek exploitative prices from their locked-in consumers, enhance revenue margin form the sale of auto component parts as compared to the automobiles themselves besides having potential long term anti-competitive structural effects on the automobile market in India.

In the case, Ghanshyam Dass Vij v. Bajaj Corp. Ltd., 12 Competiton Commission held thatin cases of horizontal agreements, Section 3(3) raises a presumption regarding the appreciable adverse effects of the agreement. Cases where an agreement is neither horizontal nor vertical, but still falls within the scope of Section 3(1) of the Act, the legislative scheme does not make it clear as to who will discharge the initial burden of proof.

  1. Case No. 03/2011
  2. Case No. 68 of 2013

Fx Enterprise Solutions India Pvt. Ltd. v. Hyundai Motor India Limited11

In this case the CCI held that Hyundai through exclusive agreements and arrangements contravened provisions of Section 3(4) (e) read with Section 3(1) of the Act through arrangements which resulted into Resale Price Maintenance. The CCI while imposing penalty of INR 87 Crore on Hyundai noted that the infringing anti-competitive conduct of Hyundai in the case included putting in place arrangements, which resulted into Resale Price Maintenance by way of monitoring maximum permissible discount level through a Discount Control Mechanism and also a penalty mechanism for non-compliance of the discount scheme.

Under section 3(5) of Competition Act, states that nothing contained in Section 3 (prohibiting anti-competitive agreements) shall restrict the right of any person to prevent infringement or imposing of reasonable conditions that may be necessary for protecting his/her intellectual property rights i.e. copyright, trademark, patent, designs and geographical indications. In this CCI states that any ‘reasonable condition’ imposed for protection of IPR would not attract Section 3, however, imposition of ‘unreasonable condition’ to protect IPR would contravene Section 3 of the Act.

  1. Fx Enterprise Solutions India v. Hyundai Motor India Limited, CCI (Case no. 36 &42 of 2014)

Conclusion

Competition law and its policy in India is developmental stage. Competition law refers to the framework of rules and regulations designed to foster the competitive environment in a national economy. Competition policy is designed to prevent anti-competitive business practices and unnecessary government intervention.

Author: Poorva Singh, Sharda University

Editor: Kanishka VaishSenior Editor, LexLife India.

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