HISTORICAL BACKGROUND

The origins of competition law in India can be traced back to the colonial era, when the British government implemented several laws to regulate trade practices and monopolies. These early efforts laid the groundwork for future competition regulation in the country:

• The Companies Act of 1913 introduced basic regulations for company formation and operations in India. It established rules for corporate governance, financial reporting, and shareholder rights. While not specifically focused on competition, this Act set the stage for more comprehensive business regulation.
• The Trade Disputes Act of 1929 provided a framework for settling industrial disputes between employers and workers. This Act indirectly impacted competition by regulating labor practices and working conditions across industries.
• The Defense of India Act of 1939 granted the government broad powers to control prices and production during wartime. Though temporary, this Act demonstrated the government’s ability to intervene in markets when deemed necessary for national interest.

After India gained independence in 1947, the country adopted a socialist economic model characterized by heavy state control and central planning. The government’s primary focus during this period was on developing domestic industries rather than promoting competition. This approach, known as the “License Raj,” involved extensive government licenses, regulations, and red tape for businesses.

However, concerns about the concentration of economic power in the hands of a few large business houses began to emerge. This led to some initial steps towards competition regulation:

• In 1964, the government established the Monopolies Inquiry Commission to examine the extent of concentration of economic power and monopolistic practices in the Indian economy. The Commission, chaired by K.C. Dasgupta, conducted a comprehensive study of industrial concentration and its effects on the economy.
• Based on the Commission’s recommendations, the government enacted the Monopolies and Restrictive Trade Practices Act (MRTP Act) in 1969, marking India’s first comprehensive competition legislation.

The MRTP Act had several key objectives:

1. Preventing concentration of economic power to the common detriment
2. Controlling monopolies and their growth
3. Prohibiting monopolistic trade practices
4. Prohibiting restrictive trade practices

To implement these objectives, the MRTP Act established the Monopolies and Restrictive Trade Practices Commission (MRTPC) as the regulatory authority. The MRTPC was empowered to investigate anti-competitive practices and issue orders to correct them.

However, the MRTP Act had several limitations that became apparent over time:

1. It focused more on controlling big businesses rather than promoting competition. The Act aimed to limit the size of companies rather than encourage competitive behavior.
2. Its procedures were cumbersome and time-consuming. Investigations and hearings under the MRTP Act often dragged on for years, reducing its effectiveness.
3. It lacked teeth in terms of penalties and enforcement. The MRTPC had limited powers to impose meaningful penalties on violators.
4. The Act did not adequately address new forms of anti-competitive practices that emerged in a more globalized economy.

SHIFT FROM MRTP ACT TO COMPETITION ACT

By the 1990s, it became increasingly clear that the MRTP Act was inadequate to deal with the new economic realities following India’s economic liberalization. The need for a modern competition law led to the enactment of the Competition Act in 2002.

Several factors contributed to this shift:

1. Economic reforms of 1991 opened up the Indian economy to foreign investment and competition. This new economic landscape required a more sophisticated approach to competition regulation.
2. Globalization required Indian companies to be competitive internationally. The MRTP Act’s focus on limiting company size was seen as hindering Indian firms’ global competitiveness.
3. The MRTP Act’s emphasis on curbing monopolies was outdated. The new focus was on promoting fair competition rather than merely controlling large businesses.
4. India needed to align its competition law with international best practices to attract foreign investment and participate effectively in the global economy.

The process of drafting the new competition law involved extensive consultations and deliberations:

• In October 1999, the government appointed a high-level committee under the chairmanship of Shri S.V.S. Raghavan to recommend a modern competition law for India. The committee conducted a comprehensive review of competition laws worldwide and consulted with various stakeholders.
• The Raghavan Committee submitted its report in May 2000, proposing a new law focused on promoting competition rather than controlling monopolies. The report recommended establishing a new regulatory body, the Competition Commission of India.
• Based on these recommendations, the Competition Bill was introduced in Parliament in August 2001. The bill underwent extensive debate and scrutiny by various parliamentary committees.
• After incorporating several amendments, the Competition Act was finally passed by Parliament in December 2002 and received presidential assent in January 2003.

Key differences between the MRTP Act and Competition Act include:

1. Shift in focus from curbing monopolies to promoting competition: The Competition Act aims to create a competitive environment rather than simply limiting the size of businesses.
2. Wider definition of anti-competitive practices: The new Act covers a broader range of anti-competitive behaviors, including cartels and abuse of dominance.
3. Introduction of merger control regulations: The Competition Act requires pre-notification of mergers and acquisitions above certain thresholds, allowing for review of their potential impact on competition.
4. Establishment of the Competition Commission of India (CCI) as a more empowered regulatory body: The CCI has broader investigative powers and can impose significant penalties for violations.
5. Inclusion of competition advocacy as a key function: The CCI is mandated to promote competition awareness and advise the government on competition-related matters.

OBJECTIVES AND NEED FOR COMPETITION LAW

The Competition Act, 2002 was enacted with the following key objectives:

1. To prevent practices having adverse effect on competition: This includes prohibiting anti-competitive agreements and abuse of dominant position.
2. To promote and sustain competition in markets: The Act aims to create an environment where businesses compete fairly and efficiently.
3. To protect the interests of consumers: By fostering competition, the Act seeks to ensure better prices, quality, and choices for consumers.
4. To ensure freedom of trade carried on by other participants in markets in India: This objective aims to maintain a level playing field for all market participants.

The need for a robust competition law in India stems from several factors:

• Economic Growth: Competition drives innovation, efficiency, and economic growth. As India aims to become a $5 trillion economy, ensuring fair competition is crucial for sustained growth and development.
• Consumer Welfare: Competition leads to lower prices, better quality, and more choices for consumers. Competition law protects consumer interests by preventing exploitative practices and promoting market efficiency.
• Market Efficiency: Competition law prevents abuse of dominance and anti-competitive agreements that can distort markets and lead to inefficient allocation of resources.
• Foreign Investment: A strong competition regime boosts investor confidence and attracts more foreign investment by ensuring a fair and predictable business environment.
• Globalization: As Indian companies expand globally, they need to be competitive in international markets. Competition law creates a level playing field and prepares Indian firms for global competition.
• Technological Advancements: With rapid technological changes, especially in digital markets, competition law needs to address new forms of anti-competitive behavior and ensure innovation is not stifled.

The Competition Act addresses these needs through provisions on:

1. Prohibition of anti-competitive agreements: Section 3 of the Act prohibits agreements that cause or are likely to cause an appreciable adverse effect on competition in India.
2. Regulation of combinations (mergers and acquisitions): Sections 5 and 6 of the Act provide for mandatory notification and review of combinations above certain thresholds.
3. Prevention of abuse of dominant position: Section 4 prohibits enterprises from abusing their dominant position in the relevant market.
4. Competition advocacy: Section 49 mandates the CCI to promote competition awareness and advise the government on competition matters.

BASIC CONCEPTS, DEFINITIONS AND TERMINOLOGIES IN COMPETITION LAW

Competition law aims to promote and maintain market competition by regulating anti-competitive conduct by companies. The primary objectives of competition law in India include:

• Promoting and sustaining fair competition in markets
• Protecting the interests of consumers
• Ensuring freedom of trade for market participants
• Preventing practices having an adverse effect on competition
• Promoting economic efficiency and development

The Competition Act, 2002 is the primary legislation governing competition law in India. It replaced the earlier Monopolies and Restrictive Trade Practices Act, 1969. The Act establishes the Competition Commission of India (CCI) as the statutory body responsible for enforcing competition law in the country. Certain very important terms, concepts, terminologies of Competition law are as follows:

1. RELEVANT MARKET
The concept of “relevant market” is crucial in competition law analysis. Section 2(r) of the Competition Act defines relevant market as the market that may be determined by the CCI with reference to the relevant product market or the relevant geographic market or both.

• Relevant product market refers to all products or services that are regarded as interchangeable or substitutable by consumers based on characteristics, prices, and intended use.
• Relevant geographic market comprises the area where conditions of competition for the supply/demand of goods/services are distinctly homogenous.

In Belaire Owner’s Association v. DLF Limited, the CCI defined the relevant market as the “market for services of developer/builder in respect of high-end residential accommodation in Gurgaon.”

2. ENTERPRISE
Section 2(h) defines an “enterprise” broadly to include persons or departments engaged in any activity relating to production, storage, supply, distribution, acquisition, or control of articles or goods, or provision of services. It excludes sovereign functions of the government.

3. AGREEMENT
As per Section 2(b), an “agreement” includes any arrangement, understanding, or action in concert, whether formal, informal, written, or oral. Mere understanding between parties can constitute an agreement.

4. CARTEL
Section 2(c) defines a “cartel” as an association of producers, sellers, distributors, traders, or service providers who, by agreement amongst themselves, limit, control, or attempt to control the production, distribution, sale, or price of, or trade in goods or provision of services.

5. CONSUMER
The definition of “consumer” under Section 2(f) is wider than in consumer protection laws. It includes any person who buys goods or avails services for consideration, whether for resale, commercial purpose, or personal use.

TYPES OF ANTI-COMPETITIVE PRACTICES

The Competition Act prohibits three main types of anti-competitive practices:

1. Anti-competitive agreements (Section 3)
2. Abuse of dominant position (Section 4)
3. Combinations (mergers, amalgamations, and acquisitions) that cause or are likely to cause an appreciable adverse effect on competition (AAEC) (Sections 5 and 6)

ANTI-COMPETITIVE AGREEMENTS

Section 3 prohibits agreements that cause or are likely to cause AAEC within India. Such agreements are void under the Act.

• Horizontal Agreements: Agreements between entities at the same level of the production chain, e.g., between competitors. Section 3(3) presumes certain horizontal agreements like price fixing, output restriction, market allocation, and bid rigging to have AAEC.
• Vertical Agreements: Agreements between entities at different levels of the production chain, e.g., between manufacturer and distributor. Section 3(4) prohibits vertical agreements like tie-in arrangements, exclusive supply/distribution agreements, refusal to deal, and resale price maintenance if they cause AAEC.

In Fx Enterprise Solutions India Pvt. Ltd. v. Hyundai Motor India Limited, the CCI held that Hyundai’s practice of imposing a maximum permissible discount through its discount control mechanism amounted to resale price maintenance in violation of Section 3(4)(e).

ABUSE OF DOMINANT POSITION

Section 4 prohibits the abuse of dominant position by an enterprise.

• “Dominant position” is defined in Section 2(r) as a position of strength enjoyed by an enterprise in the relevant market in India, which enables it to:
  • Operate independently of competitive forces prevailing in the relevant market; or
  • Affect its competitors, consumers, or the relevant market in its favour

Factors for determining dominant position are listed in Section 19(4) and include market share, size and resources of the enterprise, economic power, entry barriers, etc.

Practices constituting abuse of dominance under Section 4(2) include:

• Imposing unfair or discriminatory conditions/prices
• Limiting production, market, or technical development
• Denying market access
• Using dominance in one market to enter/protect another market

In MCX Stock Exchange v. National Stock Exchange, the CCI held NSE’s zero pricing strategy in the currency derivatives segment to be an unfair pricing abuse of dominance aimed at eliminating competitors.

REGULATION OF COMBINATIONS

Sections 5 and 6 deal with the regulation of combinations (mergers, amalgamations, and acquisitions) above specified asset/turnover thresholds. Such combinations require mandatory pre-notification to the CCI.

The CCI assesses whether a proposed combination is likely to cause AAEC in the relevant market in India. Factors for this assessment are listed in Section 20(4).

Key concepts in merger control include:

• Asset and turnover thresholds (Section 5)
• Notice requirement (Section 6(2)
• Standstill obligation (Section 6(2A)
• Gun-jumping (Section 43A)

In Sun Pharmaceutical Industries Ltd./Ranbaxy Laboratories Ltd., the CCI approved the merger subject to the divestiture of certain products to address competition concerns.

COMPETITION ADVOCACY

Section 49 empowers the CCI to promote competition advocacy, create awareness, and impart training about competition issues. This is a key function to spread a culture of competition compliance.

LENIENCY PROGRAMME

Section 46 and the Lesser Penalty Regulations provide for reduced penalties for cartel members who make vital disclosures about cartel activities. This aims to incentivize cartel participants to break ranks and provide evidence.

In the Brushless DC Fans case, the CCI granted 100% penalty reduction to the first leniency applicant who provided crucial evidence of bid-rigging.

PENALTIES AND SANCTIONS

The CCI can impose hefty monetary penalties for anti-competitive conduct:

• Up to 10% of average turnover for the last 3 preceding financial years (Section 27)
• Up to 3 times the profit or 10% of turnover for each year of cartel continuance, whichever is higher (Section 27)

The CCI can also issue cease and desist orders, require modification of agreements, and pass any other order it deems fit.

APPELLATE PROCESS

Appeals against CCI orders lie to the National Company Law Appellate Tribunal (NCLAT) (Section 53B). A further statutory appeal lies to the Supreme Court (Section 53T).

In Excel Crop Care Ltd. v. CCI, the Supreme Court upheld the CCI and NCLAT’s findings of a price-fixing cartel in the aluminum phosphide tablets market.

KEY PRINCIPLES AND DOCTRINES

1. Rule of Reason: Vertical agreements are analyzed under the rule of reason approach, balancing pro-competitive benefits against anti-competitive effects.
2. Per Se Rule: Certain horizontal agreements are presumed to be anti-competitive per se without the need for further inquiry into effects.
3. Effects Doctrine: The CCI’s jurisdiction extends to conduct outside India if it has an appreciable adverse effect on competition in India.
4. Single Economic Entity Doctrine: Agreements between entities of the same group are not scrutinized under Section 3.
5. Meeting Competition Defense: Discriminatory conduct may be justified if done to meet competition.