RELEVANCE OF COMPETITION ACT WHERE WORLD AT LARGE IS A SINGLE PLATFORM FOR CARRYING OUT TRADE & COMMERCE &

THE GEOGRAPHICAL BOUNDARIES FADING VERY FAST

BUSINESS LAW

Introduction
Competition is the lifeblood of the market economy.

History
The Monopolies and Restrictive Trade Practices Act of 1969 turned out to be the most sought after Defense Mechanism to resist the competition posed by the foreign firms to protect its own domestic market

Trigger Cause
There were essentially three enquiries/studies, which acted as the lodestar for the enactment of the MRTP Act: The first study : Committee chaired by Mr. Hazari The second study : Committee set up under the chairmanship of Professor Mahalonobis The third study : The Monopolies Inquiry Commission (MIC), under the Chairmanship of Mr. Das Gupta

Objective of MRTP ACT

To control monopolies and monopolistic trade practices To regulate the concentration of economic power to the common detriment. To prohibit restrictive trade practices unless any of them can be justified be in the public interest. Regulation of unfair trade practices.

About MRTP act, 1969

The Monopolies and Restrictive Trade Practices Act came into existence on 27th December, 1969 & came into force on 1st June 1970 The MRTP Act extends to the whole of India except the state of Jammu and Kashmir Two major parts of the Act:Monopolies Vis--vis concentration Of Economic Power Monopolistic, Restrictive and Unfair Trade Practices

Monopolies Vis--vis concentration Of Economic Power

Identification of Monopoly power Registration of Monopoly power Scrutiny of Directors

Government role in exceptional cases

Need for approval of government

Monopolistic, Restrictive and Unfair Trade Practices

The Indian statute, as most competition laws in the world, encompasses within its ambit essentially three types of prohibited trade practices: Restrictive Trade Practice Unfair Trade Practice Monopolistic Trade Practice

1. 2. 3.

Ex-XYZ ltd. is a manufacturer and supplier of bicycles and if the firm operates a selective Ex-A multi product manufacturer XYZ & Co., Ex-Pepsi entering some distribution policy, and refuses to supply to Ex- Morning shows ininto manufactures product A may beBassumed as a an agreement customers multiple retailers. It soap, shampoo, C theatre forces thewith its Activities by traders that tend to block the flow of hand wash and E hair oil. XYZ & Co. detergent, D capital into production. Such Restrictive Trade Practices. to buy a small popcorn clients saying that they employs full line forcing i.e. it will leading to along with the ticket. should traders also bring in conditions of delivery to affect the flow of suppliesmake sure that not stock Coke

Restrictive Trade Practice (RTP)

unjustified costs. brand. Includes following practices:

the retailer stocks all its products i.e. A soap, B shampoo, C detergent, D hand wash and E hair oil.

Refusal to deal Tie-up sales Full line forcing Exclusive dealings Price discrimination Re-sale price maintenance

Ex-Tele marketing ads on television, Unfair Trade Practice (UTP) the actual price of the shows that

False representations Free Gift offers and Prize schemes Non-compliance of prescribed standards Hoarding or destruction of goods False offer of Bargain price

product is far much higher than the price charged by them.

Case let:
Horlicks in1985, advertised a scheme called the Hidden Wealth Prize Offer for the buyers in Delhi A lucky purchaser of a bottle of Horlicks could find a coupon inside the bottle Advertisements stated that even if the buyers coupon did not carry a winning message; he/she had several more chances to try The Commission had held this to be an unfair trade practice as the system of getting coupon was nothing but a lottery. It was of the opinion that the prize scheme was intended to wean away the consumers from Bournvita by allurements of lucky prizes of high value rather than by fair means.

Monopolistic Trade Practice (MTP)

A monopolistic trade practice is one, which has or is likely to have the effect of:

Maintaining the prices of goods or charges for services Unreasonably preventing or lessening competition in the production. Limiting technical development or capital investment to the common detriment Increasing unreasonably:  the cost of production of any goods; or  Charges for the provision, or maintenance, of any services;  the prices at which goods are sold or re-sold  the profits which are, or may be, derived by the production, supply or distribution

Loopholes in MRTP Act, 1969

Lacks provisions to deal with anti-competition practices that may accompany the operation and implementation of the WTO agreements. Anti-competition practices: There is No mention of clauses: Abuse of Dominance Cartels, Collusion and Price Fixing Bid Rigging Boycotts and Refusal to Deal Predatory pricing

Indian Competition Act, 2002

The Competition Act, 2002 was passed by the Parliament in the year 2002, to which the President accorded assent in January, 2003. It was subsequently amended by the Competition (Amendment) Act, 2007.

Salient Features of the Act

The Industries (Development and Regulation) Act, 1951 The Industrial Disputes Act, 1947 The Board for Industrial Finance & Restructuring (BIFR) World Trade Organizations (WTO)

Key Definitions
Acquisition Relevant Geographic Market Relevant Product Market Dominance Bid Rigging Cartel Group

Main components of the Act

Prohibition of certain agreements (Anti-Competitive Agreements) Abuse of Dominant Position Regulation of Combinations (Mergers & Acquisitions) Competition Advocacy

Prohibition of certain agreements of two book Ex- Combining publishers (Anti-Competitive Agreements) or two luggagegain manufacturing companies to
The Act deals with following kind of agreements:  Horizontal Agreements: directly or indirectly determines purchase or sale prices; limit or control production, supply, technical development etc. allocate areas or customers directly or indirectly results in bid rigging or collusive bidding.


dominant market share.

   

 Vertical Agreements: Ex-Merging of different businesses like Tie-in of cement products, manufacturingarrangement; fertilizer products, electronic products, Exclusive insurance investmentsupply agreement; and advertising agencies Exclusive distribution agreement;

Ex-Joining of a TV manufacturing (assembling) company and a TV marketing company or joining of a spinning company and a weaving company.

Refusal to deal; Re-sale price maintenance  Conglomerate Agreements

Abuse of Dominant Position

"Dominant position The Act however prohibits the following practices : Unfair or discretionary conditions in purchase/sales Limits or restricts the production of goods or services in the market to prejudice of consumers

Indulging in practice or practices resulting in denial of market access is abuse of dominant position Making conclusion of contracts subject to acceptance by other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject to such contracts Using dominant position in one relevant market to enter into or to protect other relevant market

Case let: DLF Vs. Belaire flat owners

Consumers of the Belaire Flat owners, Gurgaon approached CCI when DLF extended the deadline by which the possession of the apartment was to be given. Also accused that DLF increased the number of floors from 19 to 29 The allottees claimed that DLF includes and imposes unfair and discriminatory conditions in the apartment agreements which unilaterally favor DLF to the detriment of the allottees After due investigation and submission of report by DG, CCI imposed a penalty of US$ 140 million (INR 630 Crores) on DLF Limited (DLF)

Regulation of Combinations (Mergers & Acquisitions)

Take over, amalgamation, merger. View to ensure that such amalgamations and mergers are not anti-competitive. Section 5 - Combination includes acquisition of shares, acquiring of control and mergers and amalgamations. Horizontal, vertical or conglomerate Limited exemption

Type of Combination Group Status

(a) Any acquisition by enterprises/individuals and the acquired enterprise) jointly have (i.e. no group)

Criteria

Location In India World Over

Value > Rs. 1000 crores > US $ 500 million > Rs. 3000 crores > US $ 1500

The parties (i.e. acquirer Assets

Turnover

In India World Over

million

The group, to which the Assets acquired enterprise would belong after the Turnover acquisition, has:

In India World Over In India World Over

> Rs. 4000 crores > US $ 2 billion > Rs. 12000 crores > US $ 6 billion

(b) Acquisition of control by an enterprise/individual competitor

The

acquired

enterprise Assets

In India

> Rs. 1000 crores

along with the competitors jointly have: enterprise Turnover World Over > US $ 500 million

In India

> Rs. 3000 crores

World Over

> US $ 1500 million

The group, to which the Assets acquired enterprise would belong after the Turnover

In India

> Rs. 4000 crores

World Over In India

> US $ 2 billion > Rs. 12000 crores

acquisition, has:

World Over

> US $ 6 billion

(c) Merger or amalgamation

The enterprise remaining after Assets the merger or created with the Turnover

In India World Over In India World Over

> Rs. 1000 crores > US $ 500 million > Rs. 3000 crores > US $ 1500

amalgamation has:

million The group, the enterprise Assets In India World Over enterprise Turnover In India World Over would, > Rs. 4000 crores > US $ 2 billion > Rs. 12000 crores > US $ 6 billion

remaining after the merger or the

created as a result of the have: amalgamation

Type of combination Acquisition by a single acquirer but different goods/services [section 5(a)(i)]

Assets/turnover in India Joint Assets over Rs 1,000 crores or turnover over Rs 3,000 crores

Acquisition by a group but dissimilar goods/services [section 5(a)(ii)] Acquisition by a single acquirer with similar or identical or substitutable goods/services [section 5(b)(i)] Acquisition by a group with similar or identical or substitutable goods/services [section 5(b)(ii)] Merger or amalgamation of two enterprises [goods/services may be similar or different] [section 5(c)(i)] Merger or amalgamation in a group [goods/services may be similar or different] [section 5(c)(ii)]

Group Assets over Rs 4,000 crores or turnover over Rs 12,000 crores

Assets/turnover in or outside India Joint Assets over US $ 500 million, including at least Rs 500 crores in India or turnover over US $ 1,500 million including at least Rs 1,500 crores in India Group Assets over US $ 2 billion including at least Rs 500 crores in India or turnover over US $ 6 billion including at least Rs 1,500 crores in India Joint Assets over US $ 500 million or turnover over US $ 1,500 million

Joint Assets over Rs 1,000 crores or turnover over Rs 3,000 crores

Group Assets over Rs 4,000 crores or turnover over Rs 12,000 crores Combined Assets over Rs 1,000 crores or turnover over Rs 3,000 crores Combined Assets over Rs 4,000 crores or turnover over Rs 12,000 crores

Group Assets over US $ 2 billion or turnover over US $ 6 billion Combined Assets over US $ 500 million or turnover over US $ 1,500 million Combined Assets over US $ 2 billion or turnover over US $ 6 billion

Competition Advocacy
Competition Commission of India Enforcing the law ,Competition advocate, creates a culture of competition. The Commission shall take suitable measures to: Promote competition advocacy. Create public awareness. Impact training about competition issues

Competition Commission Of India

Establishment :On 14th October, 2003 Chairman Mr. Dhanendra Kumar Objectives : Prevent practices having adverse effect Promote and sustain competition Protect interest of consumers Ensure freedom of trade

   

Difference between MRTP Act and Competition Act:

MRTP act , 1969 1. Based on the pre- reform scenario 2. Based on size as a factor 3. Competition Commission appointed by the Government 4. Complex in arrangement and language 5. Unfair trade practices covered 6. Frowns upon dominance 7. Registration of agreements compulsory Competition act, 2002 Based on the post- reform scenario Based on structure as a factor Competition Commission selected by the Collegiums Simple in arrangement and language and easily comprehensible Unfair trade practices omitted (consumer forum will deal with them Frowns upon abuse of dominance No requirement of registration of agreements

8. Very little administrative and financial autonomy for the Competition Commission 9. No competition advocacy role for the Competition Commission

Relatively more autonomy for the Competition Commission Competition Commission has competition advocacy role

Amendments for the Competition Act, 2002

CLAUSE NO. & RELATION

C No-4 Abuse of Dominant position C No-5 Regulation of combinations

PREVIOUS
Section 4: Existing provisions of section 4 apply only to an enterprise and not to the group of enterprises.

AMENDMENT
Proposed to amend the provisions of section 4 so as to make it applicable to group of enterprises also.

Section 6: It was voluntary for a person or Now it is mandatory to give the enterprise to give notice of the notice of combinations to the formation of combination within Commission within thirty days seven days to the Commission Section 6 subsection (2): Combination was deemed to have Notice period increased to 210 been approved if the commission days does not pass orders in 90 days from the date of notice

C No- 24 Approval Of Combination

C No 21: Division of enterprise enjoying dominant position.

Section 28: Earlier the Central Government can, on recommendation of the Commission, order division of enterprise enjoying dominant position. ----

Now the power is with the Commission to order division of an enterprise instead of the Central Government to order the division

C No 36 : Penalty for failure to comply with the directions of CCI

Section 43 : Provide that a penalty which may extend to Rs.1Lakh for each day subject to a maximum of Rs.1crore may be imposed Section 43A : Imposing a penalty on the person or enterprise for not giving the notice to the Commission about the combination

C No 37 : Impose penalty for non-furnishing of information on combinations

----

Difference between European Union Competition Act & Indian Competition Act:
Consult Advisory Committee In Depth Inspection Periodic Penalty Professional Secrecy

Kingfisher & Jet airways Vs. Director General

CASE STUDY: Jet Airways & Kingfisher Vs. DG

INTRODUCTION:After 2005, jet acquired Sahara & kingfisher merged with Air Deccan On 13th October 2008, jet & kingfisher declare that they are entering into an alliance. Alleged anti competitive practices by jet airways and kingfisher u/s 3 of the competition act, 2002

Allegations
Code sharing on both domestic and international flights Interline agreements Joint fuel management Common ground handling Cross utilization of crew on similar air craft types and commonality of training Reciprocity in jet privileges and king club frequent flier programmers

Issues considered by the Director General

1. Whether jet airways and kingfisher have abused their dominant position? 2. Whether the alleged agreement entered into is Violative of s.3 of the act?

Reply Filed By Jet Airways And Kingfisher

No agreement on 13th December 2008. Announcement made on the 13th of October was done with a view to help each other. Continued to work as independent Companies Interline agreements -fairly standard Agreements between several airlines and globally accepted practice Increase in the price of crude oil and Decline in passengers agreement entered into to save each other, not anti competitive. Alliance -objective of joint fuel management.

DGs report
Abuse of dominance un-sustainable Dominance to be ascertained Several other players in the market like Indigo airlines, Air India, National Aviation co. Of India ltd Last three years their market share has remained constant In the event of any agreement between the airlines Operators would result in having adverse effect on Competition. MOU was signed between the parties

Clauses of the alliance were operationalized by the 13thOctober, 2008 agreement. Jet and Kingfisher Increased their ATF by 12.25% and the fuel surcharge Air component were increased by Rs.400 Airlines had increased their profitability by 30.25%.

they will hold approximately 48% of the Market share. There is no accrual of benefit to the consumers From the alliance The alliance has not resulted in the production or Distribution of goods or provisions of services The alliance Announced has still not been rescinded The practices of jet and kingfisher violate Provisions of section 3 of the Act.

2nd reply from Jet Airways and Kingfisher

It is not appropriate to even suggest that opposite parties are acting in concert and thereby affecting competition As the alliance as announced on 13th October, 2008 was not put into effect at all, the question of rescinding it does not arise. Interline agreements-Such arrangements are prevalent in the civil aviation industry all over the world.

Multilateral interline traffic agreement 140 ATA approved airlines across the world, Follow the same agreements Such Agreements are not for any commercial benefits Since the product And services of both op 1 and op 2 are similar, the op 1 Cannot out-price op 2 in sectors it competes with it nor does it have a desire to under sell it flights either.

Decision
Activities being performed by the opposite parties are covered within the definition of `enterprise' under section 2 (h) of the act. The allegation of abuse of dominance by the opposite parties has no Substance. There is no Evidence on record which could establish that the alliance as announced was operationalized in Toto.

None of the agreements can be said to have either Determining the airfares or limiting the supply or allocating The market in terms of the provisions of section 3(3)(a), 3(3)(b) and 3 (3) (c) of the act. The market share of both the parties has remained constant The special Re-protection agreement which was entered into between jet airways and kingfisher Airlines has limited application

The interline traffic arrangement agreement entered Into by both the parties appear to be a common Industry practice Similarly the e- ticketing agreement only facilitates Issuance of interline e ticketing document and does not Involve any commercial benefits The fourth agreement is a technical MOU signed by the Opposite parties on 25th may, 2009 and is also a Common practice in airline industry.

In view of the foregoing discussion, no violation of either section 3 or section 4 is found to have been established against Jet airways and Kingfisher and the Matter deserves to be closed.

Thank You!!