E

THECHARTEREDACCOUNTANT
281
SEPTEMBER 2004
nsuring economic justice has been the main
plank of thegovernment sinceindependence.
With the same objective in mind, the
GovernmentenactedMonopoliesandRestrictiveTrade
Practices Act, !"!. #ut this small pieceof legislation
attracted sharp criticismon account of its $ineffective%
ness$ in achieving theobjectives stated in theAct. The
Act &as perceived to havefailed in curbing concentra%
tion of economic po&er or in regulating thediverse
monopolistic,restrictiveandunfairtradepractices.
'o&ever, &ith theonset of globalisation, it
&as reali(ed that it &ould bebetter to promotecompe%
tition and not concentration. A high%level committee
&as constituted in )ctober !!! under thechairman%
shipof*+*Raghavantogointotheaspectsofcompe%
titionpolic,andarelated-a&.Thecommitteesubmit%
ted its report in Ma, .///. 0ts recommendations
formedthebasisofadraft#ill,&hich&aspresentedin
theParliament. The #ill got Presidential assent in
1 anuar, .//2, after t&o%and%a%half ,ears.
)bjectiveof 3ompetition Act, .//.
ThePreamble of theAct declares theintention of the
Government to press in service theprovisions of the
Act for theachievement of thefollo&ing objectives4
i. To prevent anti%competition practices5
ii. Topromoteandsustaincompetitioninmarkets5
6 The author is in the 7epartment of 3ommerce and #usiness Administration, 8agarjuna 9niversit,,
8agarjunanagar :AndhraPradesh;
66 Theauthor is a-ecturer, 7ept of 3ommerce< Management, +R* < =R8 3ollege, 3hirala:Prakasamdis%
trict% AndhraPradesh;
The 3ompetition Act,
.//. seeks to promote
and sustain competition in
markets,protecttheinterests
of consumers, to ensure free%
dom of trade for all partici%
pantsinmarketsin0ndiaand
to th&art anti%competition
practices. Thene& Act takes
into account the modern
issues of globalisation and
WT) besides the shortcom%
ings of the no& repealed
MRTPAct!"!. #utthesuc%
cess of theAct depends on
the identification and deter%
mination of anti%com%
petitiveagreements.
T'EME
3ompetition
Act .//. >
Acriticalanal,sis
%%Prof?+Rao6andMrs#Radha66
THECHARTEREDACCOUNTANT
282
SEPTEMBER 2004
T'EME
iii. To protect theinterests of consumers5 and
iv. To ensurefreedomof tradefor all partici%
pants in themarkets in 0ndia.
)n the&hole, thelegislation seeks to clear all thehur%
dlesinpromotingcompetitionamongbusinessunitsof
domesticandforeignorigin.0nthisne&Act,thereisno
mentionof@concentration@but&hethersuch@concentra%
tion@ leads to emplo,ing anti%competitivepractices.
Major areas in focus
TheAct focuses on thefollo&%
ing four major areas4
. Prohibition of anti%com%
petitiveagreements5
.. Prohibitionagainstabuse
ofdominantposition5
2. Regulation of combina%
tions5
A. Advocac, of competition
polic,
8evertheless, thepre%
Anti%competitiveagreements
nish apointed interpre%
According to *ection 2 of the
Act, no enterpriseor associa%
tion of enterprises shall enter
intoan,agreementinrespect
of production, suppl,, distrib%
ution,storage,acBuisitionorcontrolofgoodsorprovi%
sion of services, &hich causes or is likel, to causean
appreciableadverseeffectoncompetition&ithin0ndia.
The ke, aspect in theimplementation of theprovi%
sionofthissectionistheidentificationofsituationinvolv%
ingadverseeffectoncompetition.TheActhasidentified
thefollo&ingt,pesofarrangementsCagreementsthatare
likel,tocauseadverseeffectoncompetition4
econom,, resulting in ne& t,peof restrictivetrade
orindirectl,
monopolies,anti%dumpingmeasures,sanitar,andph,%
markets, technical development or investment
need to beaddressed in thene& Act. As such, thene&
tor,, t,pe, si(eor in an, other manner
account and formulateane& polic,.
Theattemptofthehigh%levelcommitteeneeds
to beappreciated for its far%sighted vision and for
enhancing thescope of theAct. #ut thesuccess of the
The new Act attempts to delimit
practices like cartels, bid rigging,
exclusive supply and distribution
agreements. Due to lack of proces-
sion in the clauses of the MRTP Act,
one had to depend on the interpre-
tations of the MRTP commission or
courts. This anomaly was sought to
be corrected through the
Competition Act.
iii. Refusal to deal
iD.Resalepricemaintenance
As amatter of fact,
man, of the above
agreements are those
that &erecovered under
*ection22oftheMRTP
Act,!"!.
THECHARTEREDACCOUNTANT
283
SEPTEMBER 2004
Act depends on theidentification and determination of
anti%competitiveagreements. 0pso facto, an agreement
oftheabovenatureshallnotbecomevoidperse,unless
itisprovedthatsuchanagreementhasanadverseeffect
on competition.
As a measure of guiding the &ork of the
3ompetition3ommission,theActhasidentified
certain situations that arelikel, to cause
adverse effect on competition. The, are4
:a; 3reation of barriers to ne&
entrantsinthemarket5
:b; Eoreclosure of competition b,
hinderingentr, intothemarket
:c; 7riving eDisting competitors
out of themarket5
:d; Accrual of benefits to con%
sumers5
:e; 0mprovementsinproductionor
distribution of goods or provision of services5
and
:f; Promotion of technical, scientific and eco%
nomicdevelopmentb,meansofproductionor
distribution of goods or provision of services.
Abuseof @7ominant Position@
According to *ection A of theAct, no enterpriseshall
abuseits dominant position. An abuseof dominant
position is said to occur, &hen an enterprise4
:a; 7irectl, or indirectl, imposes unfair or discrimi%
nator, purchaseof selling prices on condition,
including predator, prices5
:b; -imits production, markets or technical develop%
ment to theprejudiceof consumers5
:c; 0ndulges in action resulting in denial of market
T'EME
access5
:d; Makestheconclusionofcontractssubjecttoaccep%
tanceb, other parties5
:e; 9sesdominanceinonemarkettomoveintoorpro%
tect other markets.
Eor thepurposeof determining &hether an enter%
priseenjo,s dominant position or other &ise, oneor
moreofthefollo&ingfactorsma,betakenintoaccount4
:a; Market share
:b; *i(eand resources of theenterprise
:c; *i(e and importanceof thecompetitors
:d; Economic po&er of theenterprise
:e; Technicaladvantagesenjo,edb,firm
:f; 7ependenceon consumers
:g; Monopol, status
:h; Entr, barriers
:i; 3ountervailingbu,ingpo&er
:j; Marketstructureandsi(e
:k; An,otherfactor&hichthecommis%
sionconsiderstoberelevant.
0t is evident fromtheabovethat
theAct is attempting to describe the
meaning of dominant position. 0n its
eDplanation to *ection A, theAct has
defined thetermto mean aposition of
strength enjo,ed b, an enterprisein the
relevantmarketin0ndia,enablingitto4:i;
operateindependentl, of competitiveforces prevailing
inthemarket5or:ii;effectitscompetitorsorconsumers
oftherelevantmarketinitsfavour.
Thepo&ertodecideondominantpositionisvested
in thehands of the3ommission, having regard to the
factors listed above.
Thedominanceis reBuired to bedecided caseb,
caseand therules aresubjectivein nature. 0nstead, the
Act should havedefined dominancein terms of aper%
centageof market share. 0n fact this &as the methodol%
og, of theold MRTP Act. Therearet&o aspects of this
issue. Eirst is the@determination of dominance@ and the
secondisthe@determinationoftheabuseofdominance@.
Though thefirst could beeffectivel, determined,
thecasema,belostonthesecondground.Theauthors
of the-a& should havefollo&ed theMicrosoft case
ver, closel, and shaped their thinking on this aspect.
AccordingtoSection4oftheAct,
no enterprise shall abuse its
dominant position. The power
to decide on dominant position
is vested in the hands of the
Commission. The Section 4 of
theCompetitionActhasdefined
the term dominant position
T'EME
THECHARTEREDACCOUNTANT
284
SEPTEMBER 2004
Regulation 3ombinations
*ectionFoftheActstipulatesthatan,person&hopro%
poses to enter into an agreement or combination shall
give anoticeto the3ommission in theprescribed form
&ithinsevenda,sofoccurrenceofan,ofthefollo&ing4
:a; Theboard of directors of respectivecompa%
nies accepting a proposal of merger 5
:b; Theconclusion of negotiations of an agree%
ment for an acBuisition or acBuiring control5
:c; TheeDecution of ajoint ventureagreement or
shareholder agreement or technolog, agreement.
'o&ever, the3ommission &ill not enBuire
into all t,pes of combinations. 0t has fiDed certain
norms for theacBuirer compan, and the one being
acBuired in terms of assets and turnover. 0t means that
the3ommission intends to enBuireinto onl, those
cases that result in substantial control of theassets or
turnover.
Anotherimportantaspectofregulationisthat
acombination shall becomevoid onl, &hen it causes
or is likel, to causean appreciable adverseeffect on
competition. After receipt of thenoticefor combina%
tion, thecommission &ill conduct an investigation to
decide&hether thecombination in
Buestionleadstoadverseeffectornot.
The 3ommission, if it is
primafacieof theopinion that the
combination has, or is likel, to have,
anappreciableadverseeffectoncom%
petition, it shall, &ithin seven &ork%
ingda,sfromthedateofreceiptofthe
responseof theparties to thecombi%
nation, direct theparties to thesaid
combination to publish details of the
combination &ithin / &orking da,s
ofsuchdirection,insuchamanner,as
it thinks appropriate, for bringing the
combination to the kno&ledge or
informationofthepublicandpersons
affected or likel, to beaffected b,
such combination.
The3ommission ma, invitean, person or
member of thepublic, affected or likel, to beaffected
b,thesaidcombination,tofilehis&rittenobjection,if
an,, beforethe3ommission &ithin F &orking da,s
fromthedateon &hich the details of thecombination
&erepublished.
The Competition Com-mission has fixed
certain norms for the acquirer company
and the one being acquired in terms of
assets and turnover. It means that the
Commission intends to enquire into only
thosecasesthatresultinsubstantialcon-
troloftheassetsorturnover.
The 3ommission ma,, &ithin F &orking da,s
fromthe eDpir, of theperiod specified in *ub%*ection 2,
call for such additional or other information as it ma,
deemfit fromtheparties to thesaid combination. The
additional or other information called for b, the
3ommission shall befurnished b, the parties referred to
in*ub%*ection:A;&ithinF&orkingda,sfromtheeDpir,
oftheperiod.Afterreceiptofallinformationand&ithina
period of AF &orking da,s fromtheeDpir, of theperiod
specifiedin*ub%*ectionF,the3ommissionshallproceed
to deal &ith thecasein accordance &ith theprovisions
containedin*ection2.
*ection2speaksofthescopeofordersofthe
3ommissiononcertaincom%
binations. Where the
3ommission is of theopin%
ion that an, combination
does not, or is not likel, to
havean appreciableadverse
effect on competition, it
shall, b, order, approvethat
combination including the
combination in respect of
&hich a notice has been
given under *ub%*ection :.;
of *ection :";. Where the
3ommission is of theopin%
ionthatthecombinationhas,
or is likel, to havean appre%
ciable adverse effect on
competition, it shall direct
that thecombination shall not take effect. Wherethe
3ommission is of theopinion that thecombination has,
or is likel, to have, appreciableadverseeffect on the
competitionbutsuchadverseeffectcanbeeliminatedb,
suitablemodification to such combination, it ma, pro%
poseappropriatemodificationtothecombination,tothe
partiestosuchcombination.
T'EME
THECHARTEREDACCOUNTANT
285
SEPTEMBER 2004
interestincaseofmergersunder*ection.A.
Theintention of legislature&as clear. 0f the
mergeroramalgamation&asfoundtobedetrimentalto
thepublicinterestthensuchactioncannotbepermitted
b, the3ommission. 0n oneof thejudgments, 1 ustice R
M *ahai stressed that theterm@Public 0nterest@ should
beinterpreted in a ver, distinct manner, particularl,
&hen merger involves aforeign compan,. -earned
1 usticehas underlined that theperspectiveof public
interest should change, &hen merger is bet&een t&o
0ndian companies and bet&een 0ndian and foreign
companies.0tisnottheinterestoftheshareholderorthe
emplo,ersonl,,buttheinterestofthesociet,,&hichisto
beeDamined. As per thene& Act, combinations are
reBuired to beregulated or prohibited onl, if the, are
foundtobehavingadverseeffectoncompetition.Thereis
no talk of @Public 0nterest@ here. *urel,, theeDpression
@Public 0nterest@ has larger meaning than @adverseaffect@.
An,&a,,this&illbeprovedinduecourse.
Advocating @3ompetition Polic,@
The theoretical background for thepresent 3ompetition
Act can beseen fromthechanged philosoph, of the
Government.0nthepresenteraofliberal%
i(ation, theGovernment is intending to
pla,aproactiverolethaninregulatingthe
institutions. Perhaps, it thought that the
repealedMRTPActisbentuponregulat%
ingthebusinessgro&thandhenceit&ants
to ensure free pla, of market forces.
3ompetition,itbelieves,isthefoundation
of an efficientl, &orking market s,stem,
&ith atotal freedomto develop optimum
si(e&ithoutan,restriction.
The ultimate raison d@Gtre of
competition is theinterest of thecon%
sumer.Theconsumer@srighttofreeandfaircompetition
cannotbedeniedb,an,otherconsideration.Thereisalso
aneedforsupportiveinstitutionstostrengthenacompet%
itivesociet, notabl,, adeBuatespread of information
throughoutthemarket,freeandeas,communicationand
read,accessibilit,ofgoods.Afreepress,&orth,adver%
tisements and even such modern institutions as the
0nternet could support amodern competitivesociet,.
Withoutthem,competitioncannotthriveinakindofvac%
uum. Thus, 3ompetition polic, in this conteDt becomes
aninstrumenttoachieveefficientallocationofresources,
technical progress, consumer &elfare and regulation of
There is takeover code pre-
scribed by SE!, in order to
prevent hostile takeovers.
Consistency or inconsistency
of these provisions with the
provisions of the Com-
petition Act is re"uired to be
established soon.
The parties &ho accept themodification pro%
posed b, the3ommission shall carr, out such modifi%
cation &ithin theperiod specified b, the3ommission.
0fthepartiestothecombination,&hohaveacceptedthe
modification, fail to carr, out themodification &ithin
theperiod specified b, the3ommission, such combi%
nation shall bedeemed to havean appreciableadverse
effect on competition and the3ommission shall deal
&ith such combination in accordance&ith theprovi%
sionsofthisAct.0fthepartiestothecombinationdonot
accept themodification proposed b, the3ommission,
such parties ma,, &ithin 2/ &orking da,s of themodi%
fication proposed b, the3ommission, submit amend%
ment to themodification proposed b,
the 3ommission under that *ub%
*ection.
0f the 3ommission agrees
&ith theamendment submitted b, the
parties, it shall, b, order, approvethe
combination. 0f the3ommission does
not accept theamendment submitted,
theparties shall beallo&ed afurther
period of 2/ &orking da,s &ithin
&hich such parties shall accept the
modification proposed b, the
3ommission. 0f the parties fail to
accept themodification proposed b, the3ommission
&ithin2/&orkingda,sor&ithinafurtherperiodof2/
&orking da,s referred to in *ub%*ection :H;, thecom%
bination shall be deemed to have an appreciable
adverseeffect on competition and bedealt &ith in
accordance &ith theprovisions of this Act.
What is more important in this conteDt is that
thereistakeovercodeprescribedb,*E#0,inordertopre%
vent hostiletakeovers. 3onsistenc, or inconsistenc, of
theseprovisions &ith theprovisions of the 3ompetition
ActisreBuiredtobeestablishedsoon.Eurther,there&ere
provisions in theold MRTP Act for upholding public
T'EME
THECHARTEREDACCOUNTANT
286
SEPTEMBER 2004
concentration of economic po&er. 3ompetition polic,
shouldthushavethepositiveobjectiveofpromotingcon%
sumer &elfare. Therefore, &hile competition polic, is a
desirableobjectiveand a useful instrument for serving
consumer interest and &elfare, thereis first aneed to
bringaboutacompetitiveenvironment.
Asecondreason,asalread,arguedabove,istobene%
fitfromreciprocit,fromothercountries,&hichhavelegis%
lated against theabuse of competition through dumping
andpredator,pricing.
'o&ever, thesearguments must beused &ith cau%
tion for, the immediateand short%termeffect of dump%
ing and predator, pricing is to lo&er thecost of goods.
0tisonl,thelong%termeffectsthatcouldbedeleterious
if it destro,s alternativedomestic productivecapacit,.
Theselong%termeffects ma, never comeabout. 0t
&ouldbefoolishtoloseshort%termbenefitsforillusor,long%
termgains.0tma,be&isertocountertheshort%termimpact
b,astrictl,temporar,countervailingdut,untilthecondi%
tionsthatbringaboutcounteractionsnolongerprevail.
0n so far as international dumping is concerned, &e
alread, havethenecessar, mecha%
nismin WT). A competition la& is
onl, of valueagainst domestic abuse
ofcompetitivepo&er.0nan,event,it
is safeto sa, that domestic predator,
practicesareprobabl,lesseas,todis%
cover or counter. 8ormall, the, are
controlled b, theimposition of fines
after due legal process. 'o&ever,
theseinvestigations areeDpensiveto
unravel abuses and reBuiretrained
personnel. 0t ma, beeasier to allo&
competition to assert itself in due
courserather than creating an @elabo%
ratemachiner,@.
Machiner, for 0mple%
mentation of Act
TheotherimportantsectionoftheAct
istheonerelatingtothe3onstitution
of3ompetition3ommissionof0ndia.
3hapters%000 and 0+ of theAct deal
&ith theestablishment, duties, po&%
ersandfunctionsofthe3ommission.
As per theprovisions of theAct, the
3ommission, &hich shall consist of a
chairperson and not less than t&o and
not morethan / members, has the
tocauseaninvestigationtobemadeintothematter.
I
The ultimate raison d'tre of
competition is the interest of
the consumer. The con-
sumer's right to free and fair
competitioncannotbedenied
by any other consideration.
There is also a need for sup-
portive institutions to stre-
ngthenacompetitivesociety.
po&erstoenBuireintothefollo&ingissues4
:; Anti%competitiveAgreements
:.; 7ominant position of theundertakings
:2; 3ertain t,pes of combinations
Relatingtothefirstt&oissues,the3ommissionupon
receipt of acomplaint or a referencefromthe3entral
Governmentor*tateGovernmentorastatutor,authorit,
oronitso&nkno&ledge,shalldirectthe7irectorGeneral
A88)983EME8T
Merit*cholarshipsforPost%Jualification3oursesinManagement
Accountanc,C3orporateManagementCTaDManagement
The 3ontinuing Professional Education 3ommitteeof the0nstitute
invites applications, fromthemembers of the0nstitute, for thegrant of
*cholarshipsunderthe0ncentive*chemeoftheabove3ourses.
Amemberofthe0nstitute&ho&ishestoundertaketheManagementaccoun%
tanc,C3orporateManagementCTaDManagement3ourse,iseligibletoappl,
forthegrantofMerit*cholarshipforpurchaseofbooksunderthe0ncentive
*cheme.*cholarship&illbegrantedtothose&hohadclearedtheEinaleDam%
inationofthe3harteredAccountanc,courseinonesitting:bothgroups;.
0nall/scholarshipsofRs..,F//C%eacharetobea&ardedinafinancial
,ear.Applicationsforconsiderationofthe3ommitteema,besentsoas
to reach the1 oint *ecretar,, Post Jualification, 3ourses 3ell, The
0nstitute of 3hartered Accountants of 0ndia, Post #oD4 K//,
0ndraprasthaMarg,8e&7elhi%///.b,*eptember2/,.//Afurnish%
ingthefollo&inginformationonplainpaper4
. 8ameof thePost Jualification 3ourse .. Membership number and
dateofenrolment2.Present)ccupation.A.Periodofserviceorpractice
:asthecasema,be;F.Particularsofpassingthe3harteredaccountants
EinalEDamination:Pleaseencloseacop,ofthemarksheetanda&ards,
etc.; ". Particulars of passing Management Accountanc,C3orporate
ManagementCTaD Management :Part 0; EDamination :Eor those&ho
have passed the aforesaid eDamination; and percentage of marks
obtained:Pleaseencloseacop,ofthemarksheetanda&ards,etc.;
K. Particulars of theorganisation in &hich practical training had been
undertakenorisproposedtobeundertaken.