C

Coom
mppeettiittiioonn A
Acctt,, 22000022 –– A
Ann oovveerrvviieew
w

Girish Pai K *

Competition is the lifeblood of the market economy. It spurs innovation and higher
productivity leading to accelerated economic growth; to the consumers it brings the
benefit of lower prices, wider choices and better products and services.

The value of freeing entrepreneurial energies and allowing competition to drive growth
has become all the more important for India to emerge as dominant market player in
world economy.

The old law on Competition: MRTP Act, 1969

Earlier, MRTP Act, 1969 was the law on competition matters. However, it was enacted
during era of licenses, permits and controls. Monopoly and dominant position in market
was regarded as bad in law. The ‘public interest’ and ‘consumer welfare’ were the core
principles of competition law. The MRTP Commission, the implementing body of the
law, had only powers to issue orders directing a respondent to ‘cease and desist’ from the
alleged monopolistic, restrictive and unfair trade practices. The commission did not have
the power to levy penalty for breach of law; no other penalties could be imposed.

The Act underwent several amendments during the course of its journey till date.
Prominent among them are amendments of 1984 and 1991. In 1984, unfair trade practices
enquiries were added and in 1991 the chapter dealing with mergers and amalgamation
was deleted.

However, the increasing complexities of globalised business environment took the

concept of competition to much elevated levels. The new age competition and its effects
permeated the physical boundaries of countries. Technological growth also added new
dimensions to competition issues.

India too witnessed these new developments in market competition and realized the
resultant inadequacy of extant competition law i.e., MRTP Act, 1969. In the era of
liberalization and globalisation, the MRTP Act had become obsolete in certain respects of
competition issues. There was a need to shifting focus from curbing monopolies to
promoting competition. Accordingly a new law on competition was promulgated in the
name of Competition Act, 2002.

Competition Act, 2002

The new law on competition came into being with the passage of the Competition Act,
2002 (hereafter referred to as “the Act”) by the Parliament and assented to by the
President on 13th January 2003. This Act seeks to replace MRTP Act, 1969.

The author is a partner in “Mark & Girish”, Chartered Accountants

Page 1 of 5
 C
Coom
mppeettiittiioonn A
Acctt,, 22000022 –– A
Ann oovveerrvviieew
w

Girish Pai K *
Competition Commission of India (hereinafter referred to as the ‘Commission’) has
been established in October 2003. The Commission has one member/acting chairman and
a small complement of staff. The commission besides being a quasi-judicial adjudicator
will also be a regulator on issues relating to competition matters and policy.

Provisions regarding competition advocacy have been notified. Substantive enforcement

provisions are not yet notified. Hence, the MRTP Act 1969 has not been fully repealed.
Some of the provisions relating to administration of the Act were challenged in Supreme
Court. The court has issued some directives to the government. In the light of the above
directions by the court, amendments to the Act have been proposed and the same has
been referred to standing committee on finance.

A brief overview of the Act

A. The pattern of the law

In line with prevailing pattern of modern competition laws, the Act seeks to –

1. prohibit anti-competitive agreements (including cartels), which determine prices

or control or limit or share markets among players or result in bid rigging.
2. prohibit abuse of dominant position through unfair and discriminatory prices or
conditions (including predatory pricing) limiting or restricting production,
denying market access, etc.
3. regulate combination (acquisition, mergers and amalgamations etc.) that causes or
likely to cause appreciable adverse effect on competition.
4. entrust the Competition Commission the responsibility of undertaking
competition advocacy, awareness and training about competition issues.

B. Wide coverage of the Act

Section 2(h) of the Act has defined the term “enterprise” to mean a person or a
department of government engaged in all the activities of a value chain of products and
services directly or indirectly. However the activity of the Government relatable to
sovereign functions and the activities carried on by the departments of the government
dealing with atomic energy, currency, defence and space are kept out of the purview of
the Act. Even statutory authorities regulating production or supply of goods or provision
of any services or any markets for these are covered within the ambit of the Act.

C. Anti-competitive agreements

Section 3 of the Act deals with agreements among enterprises or persons or association of
persons, which causes or likely to cause appreciable adverse effect on competition. Such
agreements are rendered void pursuant to this section.

The author is a partner in “Mark & Girish”, Chartered Accountants

Page 2 of 5
 C
Coom
mppeettiittiioonn A
Acctt,, 22000022 –– A
Ann oovveerrvviieew
w

Girish Pai K *

The Act deals with following kind of agreements.

a. Horizontal Agreements, including cartels, which:

- fix (determine) prices
- limit or control production, supply, technical development etc.
- allocate areas or customers
- bid rigging or collusive bidding

These type of agreements are presumed to cause appreciable adverse effect on

competition.

b. Vertical Agreements such as:

- tie in sales
- exclusive supply or distribution
- refusal to deal
- resale price maintenance

These type of agreements are not outright prohibited but subject to ‘rule of reasoning’.
Only if they cause or likely to appreciable adverse effect on competition, they are
prohibited.

However, exemption has been provided to agreements involving intellectual property

rights (IPRs) and to the right of any person to export goods from India to the extent the
agreement relates exclusively to production, supply, distribution or control of goods or
provision of services for such exports.

D. Abuse of dominance

Unlike MRTP law, the Act does not frown on dominance by market players. But the
abuse of dominance is prohibited under Section 4 of the Act. ‘Dominance’ or ‘Dominant
Position’ means a position of strength, enjoyed by an enterprise, in the relevant market, in
India which enables it to –

a. operate independently of competitive forces in the relevant market; or

b. affect its competitors or consumers or the relevant market in its favour

Dominance is determined by several factors e.g. market share of the enterprise

concerned, market share of competitors, entry barriers, size and resources commanded by
the enterprise or competitors, etc.

Examples of abuse include –

The author is a partner in “Mark & Girish”, Chartered Accountants

Page 3 of 5
 C
Coom
mppeettiittiioonn A
Acctt,, 22000022 –– A
Ann oovveerrvviieew
w

Girish Pai K *
Exclusionary practices such as predatory pricing, denying market access, use of
dominance in one market to enter into, or protect, other relevant market.

Exploitative practices such as discriminatory pricing and imposing discriminatory

conditions of trade, conclusion of main contract contingent upon accepting
supplementary obligations unrelated to main contract.

E. Regulation of combinations

Section 5 of the Act deals with combinations. Combination includes acquisition of shares,
acquiring of control and mergers and amalgamations. These combinations can be
horizontal, vertical or conglomerate. It is the horizontal type of combinations that has
very high potential to thwart competition when compared to other two kinds of
combinations.
In line with the market realities, the Act provides for very liberal regime of combination
regulation. The salient features of combination regulations are –

a. The Act has set very high threshold limit based on turnover or assets of the
enterprises involved in combination for notification of combinations. The
objective is to keep smaller combinations outside regulation and encouraging
Indian enterprises to grow in size as well market share in globalised market.
b. Higher threshold limit is set for combination involving parties having operation
both in India and outside India.
c. The notification of combination to the Commission is voluntary not mandatory.
d. Such notification has to be disposed off by the Commission within 90 working
days, failing which the same is deemed to be approved.
e. The commission also has the suo moto enquiry power.
f. Limited exemption is given to combination involving public financial institution,
foreign institutional investors and venture capital fund.

F. Remedies in Competition Act.

Section 27 of the Act provides various remedies for restoring competition and penalizing
the offenders in case of contravention of this law. They are –

- passing ‘cease and desist order’

- providing agreements having appreciable adverse effect on competition to be
void
- imposing penalty upto 10% of the turnover or 3 times of cartelised profit,
whichever is higher
- awarding compensation or damages as per Section 34
- directing modifications to agreements
- in case of combinations, they can be approved with or without modification or
even be refused approval

The author is a partner in “Mark & Girish”, Chartered Accountants

Page 4 of 5
 C
Coom
mppeettiittiioonn A
Acctt,, 22000022 –– A
Ann oovveerrvviieew
w

Girish Pai K *
- in case of dominant enterprise, order can recommend division as provided in
Section 28 of the Act

G. Extra territorial application

Anti competitive practices committed overseas but having effect in India has been
covered under section 32 of the Act. In order to enable the Commission to implement this
section, enabling provision (section 18) has been provided whereby the Commission,
with the prior approval of the Central Government, may enter into arrangements and
memorandum of understanding with foreign agencies and enforce the law by way of
‘effects doctrine’.

H. Other salutary features of the Act

a. Every order passed by the Commission is appealable. Writ jurisdiction of High

Courts is available since the new Commission continues to be an instrumentality
of a State under Article 12 of the Constitution
b. Review and rectification of orders of Commission have been provided for under
sections 37 and 38 respectively.
c. Jurisdiction of civil courts (including sectoral regulators when functioning as civil
courts) to adjudicate issues relating to competition matters have been expressly
excluded under section 61 of the Act.
d. Under section 35 of the Act, chartered accountants, company secretaries, cost
accountants and advocates have been made eligible to cause appearance for and
on behalf of their respective clients.

Reference:

1. Competition Commission of India website –

www.competitioncommision.gov.in
2. Indian competition policy: An assessment by Aditya Bhattacharjea, Delhi
School of Economics, New Delhi.

-----------------

The author is a partner in “Mark & Girish”, Chartered Accountants

Page 5 of 5