MEANING AND DEFINITION

Competition refers to the process of rivalry between businesses to attract customers and gain market share. Corporate governance encompasses the systems, rules, and practices by which companies are directed and controlled. The Competition Act 2002 and Companies Act 2013 are two key laws in India that regulate competition and corporate governance, respectively.

The Competition Act 2002 defines “competition” as the process of rivalry to attract customers and gain market share. It aims to prevent practices that have an adverse effect on competition, promote and sustain competition in markets, protect consumer interests, and ensure freedom of trade.

Corporate governance under the Companies Act 2013 refers to the framework of rules, processes, and practices by which a company is directed, controlled, and held accountable. It essentially involves balancing the interests of various stakeholders like shareholders, management, customers, suppliers, financiers, government, and the community.

LEGAL FRAMEWORK

The key legislations governing competition and corporate governance in India are:

• Competition Act 2002: This Act replaced the Monopolies and Restrictive Trade Practices Act 1969. It prohibits anti-competitive agreements, abuse of dominant position, and regulates combinations (mergers and acquisitions) that cause or are likely to cause an appreciable adverse effect on competition.

• Companies Act 2013: This Act overhauled corporate governance norms in India. It introduced concepts like one-person company, mandatory corporate social responsibility (CSR), independent directors, class action suits, and enhanced disclosure norms. It aims to improve corporate governance and protect minority shareholders.

• SEBI Regulations: The Securities and Exchange Board of India (SEBI) has issued various regulations on corporate governance for listed companies, including SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015.

INTERFACE BETWEEN COMPETITION AND CORPORATE GOVERNANCE

There are several areas where competition law and corporate governance intersect:

1. Board Composition: Competition concerns may arise if there are interlocking directorates between competing firms. The Companies Act mandates the appointment of independent directors to enhance corporate governance.

2. Mergers and Acquisitions: The Competition Act regulates combinations, while the Companies Act prescribes procedures for mergers and amalgamations. Both aim to protect stakeholder interests.

3. Disclosure Requirements: Both laws mandate disclosures to ensure transparency. Competition law requires disclosure of agreements, while corporate governance norms mandate extensive disclosures on various aspects.

4. Compliance Programs: Companies need to implement compliance programs covering both competition and corporate governance aspects.

KEY PROVISIONS OF COMPETITION ACT 2002

1. Anti-Competitive Agreements (Section 3): Prohibits agreements which cause or are likely to cause an appreciable adverse effect on competition. This includes cartels, price fixing, bid rigging, etc.

2. Abuse of Dominant Position (Section 4): Prohibits abuse of dominant position by an enterprise. Dominance itself is not prohibited, but its abuse through unfair or discriminatory conditions, predatory pricing, etc., is prohibited.

3. Regulation of Combinations (Sections 5 & 6): Mandates prior notification to the Competition Commission of India (CCI) for combinations (mergers, acquisitions, etc.) above specified thresholds. CCI can approve, modify, or reject combinations.

4. Competition Advocacy (Section 49): Empowers CCI to promote competition advocacy, create public awareness, and impart training on competition issues.

KEY PROVISIONS OF COMPANIES ACT 2013 ON CORPORATE GOVERNANCE

1. Board Composition (Section 149): Mandates appointment of independent directors, woman director, resident director, etc., and prescribes qualifications and tenure for directors.

2. Board Meetings (Section 173): Prescribes minimum number of board meetings, quorum, notice requirements, etc.

3. Audit Committee (Section 177): Mandates constitution of audit committee, prescribes its composition and functions.

4. Nomination and Remuneration Committee (Section 178): Requires constitution of this committee to formulate criteria for director appointment and remuneration.

5. Corporate Social Responsibility (Section 135): Mandates CSR spending of 2% of average net profits for companies meeting specified thresholds.

6. Related Party Transactions (Section 188): Prescribes approval requirements and disclosures for related party transactions.

7. Vigil Mechanism (Section 177): Mandates establishment of vigil mechanism for directors and employees to report genuine concerns.

ROLE OF COMPETITION COMMISSION OF INDIA (CCI)

The Competition Commission of India (CCI), established under the Competition Act 2002, plays a crucial role in enforcing competition law and promoting competitive markets. Its key functions include:

1. Eliminating anti-competitive practices
2. Promoting and sustaining competition in markets
3. Protecting interests of consumers
4. Ensuring freedom of trade

Powers of CCI:

• Inquiry into anti-competitive agreements and abuse of dominance
• Regulating combinations
• Imposing penalties for violations
• Issuing cease and desist orders
• Modifying agreements
• Passing any other order deemed fit

CCI can impose heavy penalties up to 10% of average turnover for anti-competitive agreements and abuse of dominance. For cartels, penalties can be up to 3 times the profit or 10% of turnover, whichever is higher.

ROLE OF MINISTRY OF CORPORATE AFFAIRS (MCA)

The Ministry of Corporate Affairs (MCA) is the key regulator for corporate governance in India. Its role includes:

1. Administration of Companies Act 2013
2. Formulation of rules and regulations under the Act
3. Maintaining registry of companies
4. Investigating corporate frauds through Serious Fraud Investigation Office (SFIO)
5. Investor education and protection

The MCA has powers to inspect books of companies, initiate prosecution for violations, order investigations, appoint inspectors, etc. It works in coordination with other regulators like SEBI, RBI, etc., on corporate governance matters.

COMPARISON BETWEEN COMPETITION ACT AND COMPANIES ACT

While both laws aim to regulate corporate conduct, there are some key differences:

1. Focus:

   • Competition Act focuses on maintaining competitive markets.
   • Companies Act focuses on regulating internal governance of companies.

2. Applicability:

   • Competition Act applies to all enterprises.
   • Companies Act applies only to companies incorporated under it.

3. Regulators:

   • Competition Act is enforced by CCI.
   • Companies Act is administered by MCA.

4. Penalties:

   • Competition Act provides for much higher monetary penalties compared to the Companies Act.

5. Scope:

   • Competition Act has a narrower scope focused on anti-competitive practices.
   • Companies Act has a broader scope covering various aspects of a company’s functioning.

JUDICIAL INTERPRETATION

The Supreme Court and High Courts have delivered several landmark judgments interpreting provisions of the Competition Act and Companies Act. Some key rulings include:

• Excel Crop Care Ltd. v. CCI (2017): Supreme Court clarified the scope of “relevant turnover” for calculating penalties under the Competition Act.

• CCI v. SAIL (2010): Supreme Court upheld the power of CCI to pass interim orders.

• Cadila Healthcare Ltd. v. CCI (2018): Delhi High Court ruled that CCI’s power to impose penalty is not absolute and must be exercised judiciously.

• Union of India v. Vodafone Group (2019): Supreme Court upheld the constitutional validity of provisions of the Companies Act on corporate criminal liability.

RECENT DEVELOPMENTS AND AMENDMENTS

1. Competition (Amendment) Bill 2022: Proposes significant changes including deal value thresholds for merger control, settlement mechanisms, etc.

2. Companies (Amendment) Act 2020: Decriminalized various offences under Companies Act, rationalized penalties, and eased compliance requirements.

3. Green Channel Route for Combinations: CCI introduced this to enable faster approval of combinations with no overlaps.

CHALLENGES AND WAY FORWARD

Some key challenges in the interface of competition and corporate governance include:

1. Balancing stakeholder interests while maintaining competitiveness
2. Harmonizing disclosure requirements under different laws
3. Addressing competition concerns in emerging digital markets
4. Ensuring compliance without stifling innovation and growth

The way forward involves:

1. Periodically reviewing and updating both laws to address new challenges
2. Enhancing coordination between different regulators
3. Promoting a culture of compliance through awareness and capacity building
4. Leveraging technology for better monitoring and enforcement
5. Benchmarking with global best practices in competition and governance

A fortiori, the Competition Act 2002 and Companies Act 2013 form the bedrock of India’s legal framework for competition and corporate governance. While distinct in their focus, both laws complement each other in fostering a robust corporate ecosystem. As markets evolve and new business models emerge, continuous refinement of these laws is crucial to maintain their relevance and effectiveness.