In common parlance, competition in the market means sellers striving independently for buyers’ patronage to maximize profit (or other business objectives).A buyer prefers to buy a product at a price that maximizes his benefits whereas the seller prefers to sell the product at a price that maximizes his profit. Competition makes enterprises more efficient and offers wider choice to consumers at lower prices. This ensures optimum utilization of available resources. It also enhances consumer welfare since consumers can buy more of better quality products at lower prices.
Fair competition is beneficial for the consumers, producers / sellers and finally for the whole society since it induces economic growth. Whereas, the unfair competition means adoption of practices such as collusive price fixing, deliberate reduction in output in order to increase prices, creation of barriers to entry, allocation of markets, tie-up sale , predatory pricing and discriminatory pricing.
India has been very conscious about the competition in the market place and has been vigilant to frame laws curtailing monopolies and restrictive trade practices The Monopolies & Restrictive Trade Practices Act, 1969 is the first enactment to deal with competition issues and came into effect on 1st June 1970.
With the advent of liberalization in the economic policy and growth in the market, the Government of India reviewed the implementation of Monopolies & Restrictive Trade Practices Act, 1969 and finding it lacking in grip and teeth it formulated Competition Policy. Competition policy is defined as those Government measures that affect the behavior of enterprises and structure of the industry with the view to promote efficiency and maximize welfare.
There are two elements of competition policy: First, a set of policies, such as liberalized trade policy, relaxed FDI policy, de-regulation, etc., that enhance competition in the markets. Second, legislation to prevent anti-competitive practices with minimal government intervention
The Government had appointed a committee in October 1999 to examine the existing MRTP Act for shifting the focus of the law from curbing monopolies to promoting competition and to suggest a modern competition law. Pursuant to the recommendations of this committee, the Competition Act, 2002, was enacted on 13th January 2003. The objectives of the Competition Act are to prevent anti-competitive practices, promote and sustain competition, protect the interests of the consumers and ensure freedom of trade. This Act provides for different notifications for making different provisions of the Act effective including repeal of MRTP Act and dissolution of the MRTP Commission
The objective of the Act is to eliminate the abuse of dominance through an anti competitive trade agreements. Here dominance refers to a position of strength which enables a dominant firm to operate independently of competitive forces or to affect its competitors or consumers or the market in its favor. Abuse of dominant position impedes fair competition between firms, exploits consumers and makes it difficult for the other players to compete with the dominant undertaking on merit. Abuse of dominant position includes imposing unfair conditions or price, predatory pricing, limiting production/market, creating barriers to entry and applying dissimilar conditions to similar transactions. An agreement includes any arrangement, understanding or concerted action entered into between parties. It need not be in writing or formal or intended to be enforceable in law. An anti-competitive agreement is an agreement having appreciable adverse effect on competition. Anti-competitive agreements include,
o agreement to fix price
o bid rigging or collusive bidding
o conditional purchase/sale (tie-in arrangement)
o exclusive supply/distribution arrangement
o agreement to limit production & supply
o agreement to allocate markets
o resale price maintenance
o refusal to deal
The objectives of the Act are sought to be achieved through the instrumentality of the Competition Commission of India (CCI) which has been established by the Central Government with effect from 14th October, 2003.
Any arrangement of combination of trading firms is regulated under the Act .A Combination includes acquisition of shares, acquisition of control by the enterprise over another and amalgamation between or amongst enterprises. Further any combination, that exceeds the threshold limits specified in the Act in terms of assets or turnover, which causes or is likely to cause an appreciable adverse effect on competition within the relevant market in India, can be scrutinized by the Commission. A firm proposing to enter into a combination, may, at its option, notify the Commission in the specified form disclosing the details of the proposed combination within 7 days of such proposal. If the Commission is of the opinion that a combination is likely to cause or has caused adverse effect on competition, it shall issue a notice to show cause the parties as to why investigation in respect of such combination should not be conducted. On receipt of the response, if Commission is of the prima facie opinion that the combination has or is likely to have appreciable adverse effect on competition, it may direct publication of details inviting objections of public and hear them, if considered appropriate. It may invite any person, likely to be affected by the combination, to file his objections. The Commission may also enquire whether the disclosure made in the notice is correct and combination is likely to have an adverse effect on competition. The commission can also pass orders in case of combinations to the following effect
o It shall approve the combination if no appreciable adverse effect on competition is found
o It shall disapprove of combination in case of appreciable adverse effect on competition
o May propose suitable modification as accepted by parties
The Commission has fixed the threshold limits of such combinations .In case of combination the threshold limits are-
For acquisition –
o Combined assets of the firms more than Rs 1000 cr or turnover more than Rs 3000 cr (these limits are US$ 500 millions and 1500 millions in case one of the firms is situated outside India).
o The limits are more than Rs 4000 cr or Rs 12000 cr and US$ 2 billion and 6 billions in case acquirer is a group in India or outside India respectively.
For merger/amalgamation –
o Assets of the merged/amalgamated entity more than Rs 1000 cr or turnover more than Rs 3000 cr (these limits are US$ 500 millions and 1500 millions in case one of the firms is situated outside India).
o The limits are more than Rs 4000 cr or Rs 12000 cr and US$ 2 billion and 6 billions in case merged/amalgamated entity belongs to a group in India or outside India respectively
The Commission may initiate enquiry into anti-competitive agreements/abuse of dominance?
o On its own on the basis of information and knowledge in its possession, or
o On receipt of a complaint, or
o On receipt of a reference
o Any person, consumer, consumer association or trade association can make a complaint against anti-competitive agreements and abuse of dominant position. Here a person includes an individual, Hindu Undivided Family (HUF), company, firm, association of persons (AOP), body of individuals (BOI), statutory corporation, statutory authority, artificial juridical person, local authority and body incorporated outside India. A consumer is also a person who buys for personal use or for other purposes.
o The Central Government or a State government or an authority established under any law may make a reference for an enquiry.
o Commission can initiate enquiry on its own on the basis of information or knowledge in its possession
o On its own, or receipt of complaint/ reference, if the Commission is of the opinion that there is a prima facie case, it shall direct the Director General, appointed under the Act, to investigate the matter and report his findings
o After receipt of the investigation report from the Director General, the Commission shall adjudicate the matter after hearing the parties and pass orders as deemed fit.
o During the course of enquiry, the Commission can grant interim relief restraining a party from continuing with anti competitive agreement or abuse of dominant position
o After the enquiry, the Commission may direct a delinquent enterprise to discontinue and not to re-enter anti-competitive agreement or abuse the dominant position
o To award compensation
o To modify agreement
o To recommend to the Central Govt. for division of enterprise in case it enjoys dominant position.
o The parties in person or through authorized representative or through a legal practitioner or a practicing Company Secretary/Chartered Accountant/Cost and Works Accountant.
o The Commission can also pass orders in case of anti-competitive agreements and abuse of dominance.
o During the course of any proceeding before it, a Statutory Authority may make a reference for opinion if any party raises an issue that the decision of the authority is likely to be contrary to the provisions of the Competition Act.
o The Commission can impose a penalty of not more than 10% of turn-over of the enterprises and in case of cartel – 3 times of the amount of profit made out of cartel or 10% of turnover of all the enterprises whichever is higher
The Act has so far become operative only partly and the Competition Commission of India has not yet been operational fully. The actual impact of the Act will be known only after its substantive provisions viz. sections 3 to 6, come into force. However, the Act still manifests certain lacunas. An examination of the powers of the CCI would suggest that the commission is fully equipped to counter and set right the vagaries of the market place. However, while seemingly enjoying carte blanche, there appear to be certain glaring lacunae which would militate against the efficacy of the provisions of the Competition Act it would be remembered that the Commission would initiate action upon complaints of anti-competitive agreements abuse of dominant position either suo moto, or on the voluntary motion of a person seeking an opinion of the Commission. Here, two aspects may be kept in mind — the lack of a mandatory provision compelling persons or entities, whether public or private, to approach the Commission and the corresponding logistical limitations of the Commission to be able to take cognizance on its own motion of every malpractice in the economy.
If there is no inbuilt principle that statutory authorities and private persons are required to approach the Commission to determine whether an anti-competitive agreement is in force, or whether there is an abuse of dominant position or whether a combination is detrimental to public interest, can we actually rely upon the parties to approach the Commission of their own accord? The Central Government also enjoys unbridled power in the matters of policy framing and issues direction on questions of policy which shall be binding on the CCI . The government also has the power to supersede the CCI, against which the CCI can make a representation to the government. Such provisions seriously affect the independence and efficacy of the CCI. In fact consultation by the Central Government in evolving competition policy with the CCI should be made mandatory, instead of discretionary, as contemplated in the Act. Moreover, the Act does not address the abuses of Intellectual Property Rights, which are monopoly rights for limited period of time.