CS Rahul Jain

Partner

CS Tulsi Agarwal
Company Secretary

RANJ & Associates, Company Secretaries

Basai Steels & Power P. Ltd

What
A contest
Striving for a goal which cannot be shared

Why
Optimize allocation of resources Effective pricing Wider choice to consumers Increase efficiency

Where
Among persons/ enterprises engaged in similar activity In a geographical area

MRTP Act 1969 was enacted: To prevent concentration of economic power Control by monopolist Prohibits restrictive trade practices Post the economic liberalizations Raghavan Committee- to advise Hence the Competition Act 2002, w.e.f. 13-01-03

Ensure fair & healthy competition

Protect the interest of the investors

Ensure freedom of trade

Act
Prevent practices having adverse effect on competition

Regulate combinations

Prohibits

Anti-competitive agreements including Cartels (sec. 3)

Abuse of dominant position (Sec. 4)

Regulates

Combinations (Sec. 5)

DOMINANCE

ABUSE OF DOMINANCE

A position of strength

Unfair trade practice

Operating independently
Affects consumer/ competitors

Restricts market access/production

Agreement to accept supplementary/ irrelevant obligations

A) Combinations include acquisition of: - Control - Shares - Voting Rights - Assets B) Control of an enterprise controlling another enterprise engaged in competing business C) Mergers & Amalgamations b/w enterprises

exceeding the threshold limits

INDIA ENTITY

ASSETS

TURNOVER or INR 4,500 crore or INR 18,000 crore

Either acquirer or target or both INR 1,500 crore have: Group has : INR 6,000 crore

WORLDWIDE ENTITY

ASSETS

TURNOVER

US$2,250 million US$750 million INCLUDING Either acquirer or target or both INCLUDING turnover in assets of at least INR 750 or have: India of more than INR crore in India 2,250 crore Group has : US$9,000 million US$3,000 million INCLUDING turnover in INCLUDING assets of at or India of more than INR least INR 750 crore in India 2,250 crore

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No enterprise/person shall enter into an agreement for: Supply/Storage Production/Distribution Provision of Services

Having appreciable adverse effect on competition (AAEC)

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horizontal agreements

vertical agreements

determining prices limits or controls markets shares markets or source of production

tie-in arrangement exclusive supply exclusive distribution refusal to deal and resale price maintenance

bid rigging or collusive bidding

-Effect would be evaluated & not presumed -If it causes AAAC then it would be void

-Presumed to have appreciable adverse effect on competition (AAEC) -Prohibited and thus void

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The term Cartel can be traced to:

Kartell from German origins Cartello from Italian origins & Cartel from French

Cartels as conspiracies against the public - Adam Smith

An arrangement of business rivals for the purpose of regulating prices or output in the industry

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An association of:

Producers Sellers Distributors Traders or Service providers

who, by agreement > - limit, control or attempt to control:

Production Distribution Sale or Price of, or, trade in goods or provision of services;
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Raise price above competitive levels Eliminate competition

CHARACTERISTICS

Secrecy Camouflaging Retaliation threats Compensation scheme

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High concentration - few competitors

High entry and exit barriers Homogeneity of the products (similar products)

No close substitutes
Similar production costs High dependence of the consumers on the product

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Cartels have direct/ indirect impact on following:

Consumers Company and its Management Shareholders / Investors Bankers Competitors Vendors Employees Government Economy as a whole

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 Information filed under sec 19 on 26.07.10 by Builders Association of India (BAI)

Against Cement Manufacturers Association

Companies involved
ACC Cements Ambuja Cements Jaypee Cements Grasim Cements India Cements JK Cement Ultratech Cement Century Cements Madras Cements Binani Cement Lafarge Cement

(CMA) and

11 cement cos

For violation of sec. 3 & 4 Order date: 20th June 2012

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Allegations
Unfair trade practice

Findings of CCI
Geographical division of markets Pricing uncompetitive and unreasonable No justification received from cos for price parallelism Cost of production not a decisive factor Meeting of minds Exchange of price information over company

CCI Order
Cease and desist

Underutilization of capacity created artificial scarcity in market

Collusive pricing Divided into 5 zones to control the supply/price Abuse of dominance Concerted action

Penalty on 11 Cement Manufacturers of more than Rs. 6,000 Crores

Penalty of Rs.73 Lakhs on CMA

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Persons

FICCI-Multiplex Association of India had filed an information on 26.05.2009 under section 19(1) Against
United Producers/Distributors Forum (UPDF) The Association of Motion Pictures and TV Programme Producers (AMPTPP) Film and Television Producers Gild of India Ltd. (FTPGI) Date of order : 25th May, 2011

involved
Amir Khan Shahrukh Khan Mukesh Bhatt Yash Chopra Manmohan Shetty Ratan Jain Karan Johar Ramesh Sippy Ronnie Screwvala Sunil Wadhwa Siddharth Roy Kapur Sunil Lulla Nandu Ahuja Jyoti Deshpande Aman Gill Sandeep Bhargava
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Allegations
Not to release any film in the Multiplexes until revenue sharing ratio is finalized Concert to fix prices

Findings of CCI
Cartel like conduct by producers and distributors Forced the multiplexes into agreeing for higher revenue ratio for members of UPDF Cost of production not a decisive factor

CCI Order
Parties are directed to refrain from indulging in such anti-competitive practices in future Penalty of Rs. one lakh is also imposed on each of the 27 opposite parties

limiting/ controlling supply by refusing to release films

boycotted the multiplex cinema operators

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No/Little water scarcity Approaching physical water scarcity

Physical Water Scarcity Economic Water Scarcity Not established

Source: Centre for Science & Environment

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a) In case CCI finds cartels to have caused AAEC:

Penalty up to 3 times of profit for each year or Penalty up to 10% of the average turnover for each year (whichever is higher)

b) Failure to abide by CCI Order

Liable to be imprisoned up to one year

c) For false statement, omits any material facts, willfully suppress or destroys documents

Penalty upto Rs. 10 Lakhs

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IN EMPLOYMENT- AS A COMPLIANCE OFFICER

Preparation of Competition Compliance Manual Educating the directors and employees w.r.t. Compliances Establishing an in-house Competition Compliance Committee Complying with the pre-merger formalities Review of the market conditions at regular intervals Periodical review of compliance Develop a competition compliance culture

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IN PRACTICE AS AN EXPERT INDEPENDENT PROFESSIONAL

Appearance before CCI Drafting / Vetting of Agreements Preparation of Competition Compliance Manual / Code of Ethics Advise in case of Combinations Competition Compliance Audit Guidance in case of Scheme of Leniency Spreading Competition Awareness Acting as an Independent Professional in Competition Compliance Committee

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The law provides that the Commission shall impose upon each enterprise, which is a party to the cartel, a penalty up to:

3 times of profit for each year or 10% of the average turnover for each year, (whichever is higher)
However, it remains unclear, how the CCI would be calculating the three preceding financial years. Say, if a cartel is in operation from 2005-2009 and it gets detected in 2011 and prosecuted subsequently, then in this case what period would be considered to determine the penalty?

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Thank you

Two roads diverged in a wood, and I, I took the one less travelled by, And that has made all the difference. - Robert Frost

We would be happy to receive your feedback!

CS Rahul Jain consultranj@gmail.com CS Tulsi Agarwal tulsiag2009@gmail.com

Useful links : www.cci.gov.in www.oecd.org www.cuts-ccier.org www.articles.economictimes.indiatimes.com www.indiankanoon.org

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