Author: Mozammil Ahmad, III year of LL.B. from Campus Law Centre, University of Delhi
The competition regime in India emerged in 1964, when the government, in pursuit of economic growth set up the Monopolies Inquiry Commission (MIC). The MIC submitted a report wherein they observed that there prevailed a high economic concentration of power with some entities. A competition legislature was suggested to regulate power concentration in Indian markets. India’s economy was based on the Nehruvian economy model, wherein the private and public sector co-existed. As opposed to the government sector, private companies faced relatively limited licensing.
Further entry and exit barriers in markets were quite high. In the backdrop of this, the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act 1969) was enacted. The purpose behind the statute was in line with Article 38 and Article 39 of the Indian Constitution which states that the Government must ensure social and economic growth. The Directive Principles mandate that the State should ensure distribution of ownership of controlled goods, such that greater public benefit is achieved. The main objectives of the MRTP Act 1969 were to control monopolies, prohibit restrictive trade practices, the establishment of the MRTP Commission as a regulatory body and ensure fair markets.
However, there were still some shortcomings to the legislation in terms of lack of clarity on the definition of abuse of dominance, bid-rigging, price-fixing and collusion, refusal to deal, etc... Further, exemptions to government companies gave them an unfair edge in competition and free-market competition suffered. Hence, In 1977, a need to revamp the MRTP Act was realised since it had not been able to achieve its goals. The Sachar Committee was set up which made certain recommendations regarding the MRTP Act, inter alia,
· Increasing the MRTP Commission’s roles and powers
· Need for the inclusion of unfair trade practices under the MRTP Act
· Need to bring public authorities under the scrutiny of the MRTP Act
1. Amendments to the MRTP Act, 1969
Subsequently in 1984, the Monopolies and Restrictive Trade Practice (Amendment) Act (MRTP Act 1984) was enacted. Under this, an entity that was not a monopolistic undertaking could also be considered to be indulging in monopolistic trade practices. Unfair trade practices were also included under the scope of the MRTP Act. The statute was further amended in 1991.
2. Raghavan Committee
The New Economic policy and New Industrialisation Policy was released in 1991 leading to economic reforms. Post-1991 there had been a substantial shift from the command-and-control economy that India followed to policies of liberalisation, privatisation and globalisation.
India also agreed to be a party to international agreements of General Agreement of Tariff and Trade and Trade-Related Aspects of Intellectual Property Rights. These developments opened India’s economy and led to increased participation from domestic and global players. Thus, there was a need for Indian legislations to be at par with international legislations promoting free markets. The MRTP Act was socialist and focused more on prohibiting economic concentration. In light of these economic developments, the MRTP Act became less relevant and obsolete.
The Raghavan Committee was formed to recommend a more effective competition regime and in the SVS Raghavan Committee Report, they outlined various suggestions. This included bringing private and government companies under similar scrutinization, divesture of shares of monopolies, etc. Instead of incorporating further amendments to the MRTP Act, the introduction of new competition law was suggested. This would be needed to better suit the characteristics of the developing Indian economy.
This is because the MRTP Act revolved around prohibiting monopolies while there was a need for a regulatory regime that would increase competitive forces in markets, promote free markets and create a conducive business environment for players.
Based on the Report prepared by the Raghavan Committee, the government set out to introduce a new competition law and the Competition Act, 2002 was passed. Some important features of this law are:
· Section 3regulates anti-competitive agreements (horizontal and vertical agreements)
· Section 4prohibits parties from abusing their dominant position. The prerequisite under this section is that only an entity which if found dominant can be held for violation of abusing its dominance.
· Section 19(4) lays down various parameters which would determine whether an entity is dominant or not.
· Section 5 and Section 6 deal with merger control. The notion, under the MRTP Act, that big is bad is done away with under this statue. Rather, thresholds are outlined and if an entity meets such thresholds, it calls for scrutiny.
· If the thresholds are met, Section 20(4) lays down various parameters which would determine whether a combination would have an appreciable adverse effect or not.
· Section 7 establishes the Competition Commission of India (CCI). This is the regulatory body, responsible for the implementation of the law. Section 55 of the present Act repealed the erstwhile MRTP Act and all pending cases were transferred to CCI.
This Act was also amended in the year 2007, wherein the competent regulatory bodies were divided into the Competition Commission of India (CCI) and the Competition Appellate Tribunal, to which further appeal would lie. The appellate body is now replaced by the National Company Law Appellate Tribunal (NCLAT).
Further Amendment was introduced in 2009, wherein provisions relating to anti-competitive agreements and abuse of dominance were notified. Thus, presently the Competition Act, 2002 has been dealing with competition regulation for almost two decades. In 2019 the Report of the Competition Law Review Committee was published based on which further amendment to the 2002 Act are proposed. The Competition (Amendment) Bill, 2020 is in the pipeline and would introduce further new concepts and substantial changes such as buyer’s cartel, deal value threshold, integration of office of Director General, etc., taking into account the changing market considerations and international regulatory approaches.
India versus EU and USA
The Indian competition regime has adopted various provisions from international jurisdictions, especially from the EU. However, some differences have been adopted, more suited to the Indian market structure.
1. Enforcement
The American competition regime includes two agencies, the Federal Trade Commission and the Department of Justice, working in concurrence. They are responsible for the enforcement of federal antitrust legislation, the Sherman Act, 1890 and the Clayton Act, 1914. Further separate states in the United States may have their antitrust legislation. If the antitrust conduct of an entity is in a particular state, the state legislature would have jurisdiction over it. The appeal is allowed as a matter of right to the US courts of appeals.
In the EU, competition law regulation is based on the Treaty on the Functioning of the European Union (TEFU). The European Commission is responsible for the implementation of the provisions of TEFU across Europe. However different European nations have their competition laws and regulators as well.
Unlike Europe and the USA, India has a single agency, i.e., the CCI and a single antitrust law, Competition Act. 2002. Appeal from the CCI lies to the NCLAT, and further appeal lies to the Supreme Court of India.
2. Competition investigation
The integrated office model is followed both in the United States and the EU. This is a type of competition structure, wherein the competition authority can perform the dual function of investigation and adjudication, along with the right to appeal to specialised bodies.
While India already has the right to appeal to a specialised body (NCLAT), the CCI does not have the dual function of investigation and adjudication. The office of the Director-General is responsible for conducting investigations into competition-related matters and is under the government of India. The Competition (Amendment) Bill, 2020, seeks to bring India on par with international regulators by merging the office of Director General with the CCI.
3. Anti-competitive agreements
In the United States, Section 1 of the Sherman Act prohibits any contract, combination or conspiracy in restraint of trade or commerce. The US Courts have interpreted this section to not prohibit all agreements but agreements that are posing an unreasonable restraint to trade. The per se rule is followed for agreements that the court deems to always have an anti-competitive effect.
In the EU, Section 101 of TEFU renders void any agreement which disrupts competition in markets and parties are liable for 10% of their annual worldwide turnover for violating this provision.
Section 3 of the Competition Act, 2002 covers anti-competitive agreements. A rule of reason approach is followed towards vertical agreements and it can be defended before CCI that the practices followed did not cause an appreciable adverse effect on competition. However, a per se rule is followed towards horizontal agreements, and if the CCI finds a horizontal agreement between parties, they are liable to be penalised. There are exceptions such as joint ventures which are created to enhance efficiencies and these agreements would not be penalised.
The penalty imposed on parties would usually be calculated based on their relevant turnover. However, the Competition (Amendment)Bill, 2020 has introduced penalties to amount be calculated based on their total turnover.
4. Abuse of Dominance
To determine abuse of dominance, the perquisites which are similar to all three jurisdictions are that the relevant product market and the relevant geographical market have to be determined.
In the EU, Section 102 of TEFU prevents entities that hold a dominant position from further abusing their dominance. A list of activities is provided which may be considered as abuse of dominance under this provision.
In the United States, Section 2 of the Sherman Act prohibits monopolisation or any attempts to monopolise.
In India, Section 4 of the Competition Act, 2002 prevents entities from abusing their dominance. Similar to the EU, a list of conduct that would be considered as abusing one’s dominance is provided for under the provision.
5. Merger Control
In the United States, the merger control regime falls under the purview of the Clayton Act. Section 7 of the Clayton Act prohibits mergers that can substantially lessen competition. The agencies have to approach the courts to prevent an anticompetitive combination from taking place.
In the EU, merger control regulation, known as Council Regulation (EC) No. 139/2004, are responsible for regulating mergers and prohibit mergers which would significantly lead to an impact on effective competition.
In India, if asset-based and turnover thresholds given under Section 5 are met, the CCI can scrutinise mergers. If it does not lead to any appreciable adverse effect on competition, the combination is approved. The CCI does not have to approach court but is empowered to block a combination by itself. Unlike other jurisdictions which have blocked some mergers, the CCI has approved of all combinations filed to it, albeit some have had to be further scrutinised in the Phase 2 investigation.
Conclusion
The competition model in India is heavily derived from the EU and USA, albeit with minor differences in some aspects. It is expected that the Competition (Amendment)Bill, 2020 would further bring India to par with international regulatory regimes.