Competition Act An Overview

Transcription

1 Competition Act An Overview Competition is "a situation in a market in which firms or sellers independently strive for the buyers' patronage in order to achieve a particular business objective, for example, profits, sales, turnover or market share".' Competition policy and law assume immense significance not only in the efficient allocation of resources in an economy but also in ensuring availability of goods and services at competitive prices to the consumers. The former is essentially understood to refer to those governmental measures that directly affect the behavior of firms and the structure of the industry. It encompasses an array of governmental policies like privatisation, de-regulation, trade policy, industrial policy, consumer policy, regulations governing capital and competition law. Thus, competition policy includes competition law. Competition policy therefore can be regarded as a genus, of which competition law is specie. The raison d'etre behind the competition policy and law is to preserve and promote competition as a means of ensuring efficient allocation of resources in an economy in order to ensure faster growth and more equitable distribution of income. Competition law primarily deals with anti-competitive business agreements, abuse of dominant market position by enterprises and regulation of mergers, amalgamations and acquisitions. However, both aim at promoting and fostering competition, economic efficiency, consumer welfare and freedom of trade and therefore, they are complimentary to each other. Genesis of the Competition Act-2002 The Monopolies and Restrictive Trade Practices Act was designed to "ensure that the operation of economic system doesn't result in the concentration of economic power to the common detriment and to prohibit such monopolistic and restrictive trade practices prejudicial to "A Frame work for the Design and Implementation of Competition Law and Policy", World Bank and OECD, Paris, Hereinafter referred to as the M.R.T.P. Act.

2 C.U.L.R. Notes & Comments 301 public interest 3". The declared economic philosophy behind this Act was "small is beautiful". The economic policies initiated by the government of India since 1991 were indisputably contrary to some of the proclaimed objectives behind this Act. The M.R.T.P. Act also needed to be further diluted in the context of significant changes that the Indian economy has been experiencing after India started implementing its obligations arising under the World Trade Organization". To give an instance, the M.R.T.P. Act did not have any provision to deal with possible abuse oftrade Related Intellectual Property Rights' regime in the domain of competition. Besides, Competition regime envisaged under it is also not compatible with economic reforms initiated by the Government since 1991 and the process of globalization sweeping across the world. All this culminated in the emergence of a situation in which there is a visible repugnancy between the governmental economical policies and the existing law. This doesn't augur well for the economic reforms being undertaken by the government as their very success warrants the implementation of policy and law in tandem. Recognizing these inadequacies and inconsistencies, the Government of India in 1999 appointed a committee to draft a modern Competition law that would be comprehensive enough to deal effectively with the changing economic scenario and at the same time addressing the inconsistencies and inadequacies in the erstwhile legislation. The Government of India being seized of this problem, constituted an expert The statement of objects clause of the M.R.T.P. Act Proclaims to this effect. India, being a signatory to the WTO agreements needs to ensure that its domestic trade policies are compatible with different agreement of WTO. 5. TRIPs agreement covers 9 categories of Intellectual Property viz., a) Copyright and related rights; b) Trademarks including service; c) Geographical indications; d) Industrial Designs; e) Layout Design of Integrated circuits; f) Trade Secrets; g) Patents; h) Patenting of Micro organisms; and i) New plant varieties including seeds and other propagating material.

3 302 Cochin University Law Review [2006] group, viz., S.V.S.Raghavan Committee 6 to review the working of the M.R.T.P. Act and make viable suggestions. One of the prime recommendations of the Raghavan Committee was to repeal the M.R.T.P. Act and enact a new legislation in its place to bring compatibility between the Government's economic policy and law. Based on these recommendations, the Competition Act, was enacted and it is the most debated Indian law on the statute book. The aims and objectives of the Competition Act are:8 to promote and sustain competition in local and national markets; to regulate and prohibit anti-competitive business practices; to promote economic efficiency and consumer welfare; to ensure freedom of trade carried on by other participants in markets; and 5. to establish an independent Competition Commission vested with adjudicatory powers to realize the afore-mentioned objectives. Highlights of the Act The procedure for mandatory registration of agreements, containing restrictive clauses that we may find in other MRTP Act has been dropped'. Hence, restrictive business agreements are altogether exempted from mandatory registration. Nine Member high level committee constituted on 25 October, 1999, submitted its Report on 22 May, Vol-I of the Report is on Competition Policy and Law; Vol-II contains the concept Bill on competition policy christened as "Indian Competition Act Draft Bill". Act No. 12 of 2003 The statement of object of the Bill proclims to this effect S.33 of the MRTP Act required for the registration of certain agreements relating to restirictive trade practices

4 C.U.L.R. Notes & Comments 303 However the Act prohibits horizontal l and vertical agreements" that cause or likely to cause, an adverse impact on competition in the relevant market. Four types of horizontal anti-competitive agreements, viz., agreements relating to price fixation, output restriction, market allocations and bid rigging are per se presumed as having as appreciable adverse effect on competition and hence prohibited.' 2 Vertical agreements pertaining to tie in arrangements, agreements relating to exclusive supply and exclusive distribution, refusal to deal and resale price maintenance are prohibited only when they have the result and effect of causing an "appreciable adverse impact on competition." i3 Thus, in short the intent of the Act is not to deal with structures that lead to anti-competitive practices, but to deal with practices on a case-by-case basis in order to protect and safeguard the interests of consumers. Hence, the restrictive business agreements like exclusive dealing, refusal to deal, tie in sales etc., are not prohibited per se but they are to be judged on the touch stone of rule of reason so as to ascertain their impact on competition and legal sustainability." Agreements between two or more enterprises that are at the same stage of production chain and in the same market and engaged in identical trade of goods or provision of service. Ex: agreement between wholesalers, or retailers. Agreements between enterprises that are at different stages of production stages/level of production chain in different market. Eg: agreement between producers and distributors. M.R.T.P. Act, S. 3(3). Id., S. 3(4) along with explanation. 14. The Supreme Court in Tata Engineering & Locomotive Co. v RRTA, A.I.R S.C. 973, held that whether a trade practice is restrictive or not has to be arrived at by applying the rule of reason and not on the doctrine that any restriction as to area or price will per se be a restrictive trade practice. To determine this question three matters are to be considered. First: what facts are peculiar to the business to which the given restraint is applied; Second: what was the condition before or after the restraint is imposed; Third: what is its actual and probable effect. The spirit and substance of this principle (fn. contd. on next page)

5 304 Cochin University Law Review [2006] The concept of dominant undertaking envisaged under the MRTP Act has been discarded. Under the Act, the acquisition of dominance by an enterprise is neither frowned upon nor is it legally assailable. But the abuse of dominant position is made actionable at law. I5 Such abuse of dominant position, inter alia, includes imposition, either directly, or indirectly, of unfair or discriminatory purchase or selling prices or conditions, including predatory prices of goods or service, limiting production or supply of goods or provision of service, indulging in practices resulting in denial of market access, making the conclusion of contracts subject to acceptance by other parties of supplementary obligations and using dominant position in one market to enter into or protect other markets.16 Monopolies and abuse of market power are regulated under the Act by prohibiting the abuse of dominance. Dominant position means a position of strength enjoyed by an enterprise in India, which enables it to operate independently of competitive forces prevailing in the relevant market" or affects its competitors or consumers or relevant market in its favour. The Competition Commission may, either suo motu, or on receipt of a complaint from any person, consumer, trade association or on receipt of reference from the Central Government or State Government, investigate an alleged abuse of a dominant position. The Act does not make any distinction between foreign and domestic monopolies. The letter and tenor is'also reflected in Section 19(3) of the Act, which states that the Competition Commission while determining whether a restrictive agreement has an appreciable adverse effect on competition or not shall have regard to all or any of the following, viz., (a) entry barriers to new players; (b) driving away of existing players; (c) accrual of benefits to consumers; (d) improvement in production and supply of goods or services; (e) improving technical & scientific development. M.R.T.P. Act, S. 4. Ibid. 17. Relevant market means either relevant product market or relevant geographical market and it will be decided by the Competition Commission in accordance with the factors laid down in Section 19 (6) and (7) of the Act.

6 C.U.L.R. Notes & Comments 305 of the Act evidently shows that under the purview of the present Act the size and domestic market share of large incumbents need not matter so long as there are no barriers to competition from imports. Hence, that the intent of the Act is not to deal with dominance per se but the abuse and misuse of dominance. Thus the Act frowns upon abuse of dominance but not the dominance itself. This is perhaps due to the recognition of the ambition of the Indian industry to grow big and enjoy economies of scale in order to become globally competitive. The Act contains adequate provisions for the regulation of mergers, amalgamations and acquisitions above a threshold and prior notification made optional.' 8 Thus, mergers and amalgamations below the threshold are made very easy and simple. However, notification from any person or enterprise about their entering into a "combination" is voluntary. The Competition Commission holds the right to enquire into whether a "combination" has caused or likely to cause an adverse impact on competition in the relevant market.' 9 The Act has also set up threshold limits in this regard. The exhaustive list of factors that would determine whether a combination has/would have an adverse impact on competition in the relevant market can be sub-divided into factors which have the nature of either negatively and positively influencing competition." This helps in the consolidation of Indian firms through the route of mergers and acquisitions so as to enable them to compete successfully in the Global environment. The Act provides for exemplary penalty for offences up to 10 per cent of average of the turnover for the last three preceding years. Further, non compliance with the orders of the Competition Commission will entail civil imprisonment up to one year and a penalty not exceeding Rs. 10 lakhs. M.R.T.P. Act, S. 5. Id., S Id., S. 20 Power of the Commission to hold enquiry into combination.

7 306 Cochin University Law Review [2006] The provisions relating to unfair trade practices as enumerated in Sections 36 to 36E of MRTP Act have been omitted and all pending complaints as against such trade practices would be transferred to consumer fora immediately after the commencement of the Act. The Act has established an independent and autonomous competition authority, viz., Competition Commission of India with a well-defined role as an adjudicator and a catalyst in the promotion of competition advocacy.in order to meet its expenses a competition fund has also been established.2' Deficiencies in the Act What Needs to be Done? Possibility of misuse of power to grant exemption Section-54 of the Act confers extraordinary and unbridled power upon the Central Government to exempt any class of enterprises from the application of this Act, or any provisions thereof for such period in the interest of security of the State or public interest or for giving effect to any practice or agreement arising out of and in accordance with any obligation assumed by India under any treaty or convention with any other country or countries or any enterprise which performs a sovereign function on behalf of the Central or State Government. The grounds on which the Government can invoke its power to exempt are not delineated in a clear manner, leaving a wide discretion to the government. If one goes by past experience and trend then it is evident that discretionary powers vested with government are likely to be abused and misused for partisan considerations.' In addition, the right of any person to export goods from India to the extent to which the agreement relates exclusively to the production, supply, distribution or control of goods or provision of services for such export is also excluded. Hence, suitable precautionary provisions Id., S. 51. Id., S.55.

8 C.U.L.R. Notes cg- Comments 307 should be inserted into the Act to empower Competition Commission of India to review the exemptionary power exercised by the Government to scan minutely whether it has really been exercised to promote the avowed purposes stated therein or in the alternative the grounds of exemption should be delineated in a comprehensive and exhaustive manner so as to obviate any arbitrary exercise of authority by the Government. This is necessary in order to prevent the Central Government from misusing its exemptionary powers for achieving partisan ends. Failure to address the abuse of `IPRs ' The Act doesn't address the anti-competitive business practices arising due to introduction of Intellectual Property Rights (IPRs) under the WTO regime. 23 The supremacy of intellectual property rights over restrictive business practices, in case of conflict or repugnancy between them is recognized under the Act. 24 The granting of a patent establishes a monopoly in favour of the patentee and which maybe abused by him to the detriment and loss of public at large. In fact there are increasing instances of abuse ofpatent rights by patent holders by means of controlling output, supply, maintaining artificial prices and imposing unjustified conditions upon licensees. All these restrictive conditions are ultimately bound to injure the interests of consumers. TRIPs allow member countries to deal with such abusive trade practices under Articles 6, 31 and 40." However, the present Act doesn't contain any provisions to deal with IPR abuses. It has been stated that since 26 the rights related to IPRs are unequal, those connected with abuse of dominant position are yet to be defined explicitly in the Act. Therefore it appears that in India the intellectual Id., S. 56. Id., S. 3(5). Id., S. 51. Damond, A.D.(2004); "Competition Policy & Intellect Property Right: Patentmatice", com.publi.htm.

9 308 Cochin University Law Review [2006] property laws have over riding powers over those conferred through the Competition Act." In a sense it infers that that IPR laws override competition law but this need to be changed to bring about harmony and for striking a balance between the interests of consumers and IPR holders. The Competition authority envisaged under the Act will be the ideal body to deal with IPRs abuses and provide necessary inputs to the government on the subject matter. Further, during the exercise of intellectual property rights, if any anti-competitive trade practice or conduct is seen operating to the detriment of consumer interest or public interest, it ought to be assailed under the competition policy or law. This inadequacy in the Act should be addressed suitably to effectively deal with IPR abuses to strike out a balance between IPR protection and competition law. Competition policy at the whims of Government: The Central Government has unbridled power in the matter of policy framing and any directions on questions of policy issued by it shall be binding on the Competition Commission of India. Further, the decision of the Central Government whether a question is one of policy or not shall be final. 27 This seriously affects the independent functioning and credibility of the competition authority. In order to ensure that the policy framed by the government is based on the cardinal principles of competition, the Competition Authority should be conferred with the power to review such policy basing on generally accepted and wildly followed principles of competition accepted world over. This is also desirable to ensure convergence between policy and law. Whistle blowers not given protection Information about hard-cartels is very difficult to procure as the perpetrators of such cartels operate clandestinely and very often useful and vital information about the existence and operation of such cartels is 27. It is free from the Parliamentary control under the Constitution of India.

10 C.U.L.R. Notes & Comments 309 provided by the insiders of the cartel club. In fact, an appreciable number of cartels were busted on the vital information provided by insiders who in fact also act as whistle-blowers. These whistle blowers should be given some protection on the lines available under the Criminal Law to accomplices or approvers so as to encourage and embolden them to come out with revealing facts. Hence, the Act should contain suitable provisions, assuring some kind of immunity to the insiders coming out with material facts about the existence and nefarious activities of a cartel. The provisions of the Act on hard core cartels do not deter parties from forming a hard-core cartel. Similarly, this Act does not provide any incentive to whistle blowers for exposing and disclosing the vital information on the existence of a hard core cartel resulting in the busting of the same. Given the pace at which Indian industry is globalizing, the Act should have adequately armed the Competition Commission with powers to examine the conduct and impact of cartels that are made operational outside Indian soil and take necessary remedial action-with respect to subsidiaries of the actors present in India based on this analysis. Enhancement of the Status of competition Authority: Under the Act, the Competition Commission does not enjoy enough independence as the Central Government wields enormous power, including the power to supersede the Commission, under certain circumstances at its mere subjective satisfaction for a period of not more, than six months. 28 Besides, the salaries and allowances payable to Chairman and members of the Commission are drawn out of the Competition Fund and to which the grants are sanctioned by the Central Government. 29 Planning for financial allocations to the Competition Commission should be very momentous and imperative for it to retain its M.R.T.P. Act, S. 56. Id., S. 51.

11 310 Cochin University Law Review [2006] identity and most importantly its autonomy. The power of the Central Government to supersede the Commission should necessarily be preceded by an inquiry by a judge of the Supreme Court and the salaries and other allowances be paid out of the Consolidated Fund of India" to ensure that the competition authority is free from political and budgetary controls of the Government. Relationship between Competition Commission and other regulators should be precisely defined as the Act retains ambiguity vis-a-vis the allocation of authority and jurisdiction between Competition Commission and other sectoral regulators. The Competition Commission should be explicitly recognized as the higher forum to decide issues on competition in all sectors and its decisions should be made binding on other sectoral regulators, subject to the right of appeal to the Apex Court. Further, consultation by the Central Government in the evolving of Competition Policy with the Competition Commission should be made mandatory, instead of discretionary, as contemplated in the Act. Extra-Territorial jurisdiction: The extra-territorial jurisdiction available to the Commission under Section-32 should empower the Commission with the authority to pass necessary orders in addition to the power to initiate inquiry in respect of any anti-competitive business practice emanating outside India but having adverse effect upon competition in India. In order to ensure the enforcement of such orders outside the territory of India, the Act should facilitate proper co-ordination and collaboration between different competition authorities established in different countries across the world. This makes the extra-territorial jurisdiction vested with the Commission really meaningful, purposeful and effective. 30. It is free from the Parliamentary control under the Constitution of India.

12 C.U.L.R. Notes & Comments 311 Proper Enforcement: The aims and objects of any legislation could be realized only through proper and strict enforcement of its provisions. A slackly enforced law is worse than no law at all. Hence, ways and means should be devised under the Act to ensure strict compliance and enforcement of its provisions. Then alone its impact would percolate into the economy and its beneficial effects felt by the stake holders. In conclusion, it is submitted that the overall direction of the Act is good and beneficial. However, the Parliament may consider the above suggestions to make it more relevant to the existing ground realities in our country and also into context of the changing economic scenario. V.R.C. Krishnaiah* & C. Diwakar Babu** M. Corn; M.L.; Ph.D., Dean, Faculty of Law, S.V. University, Tirupati ** M.A., M.L., Part-time Research Scholar, S.V. University,Tirupati.