Brain Booster Articles
EVOLUTION OF COMPETITION LAW IN INDIA
Author: Harshitha Ulphas, IV year of B.B.A.,LL.B.(Hons.) from CHRIST (Deemed to be University)
The World Bank in 1999 defined competition as, a “Situation in a market in which firms or sellers independently strive for the buyers’ patronage to achieve a particular business objective, for example, profits, sales or market share.” They have also recognized how competition is essential for efficient trade. Competition is also considered as a strong foundation for the effective functioning of the market system which has advantages in the form of pre-conditions which prohibit/ put a check on the freedom that is invested with the private individuals and leads to the creation of socially fair, optimal and desirable market results.[i] The competition laws are enacted to promote competition in markets that are not necessarily stable at all times. The scope of failures in markets gives rise to the possibility of execution of anti-competitive activities that might lead to abuse of dominance, which also has the potential to tamper with consumer welfare and also the smooth functioning of the markets. These laws ensure that no company or person has absolute power over the markets, and also that the consumers have a choice in the product they would want to consume.
Competition law can be traced back to as early as the Roman Republic in 50 BC. The law was then applied to protect the grain trade; wherein heavy fines were imposed on stopping the supply ships.[ii] The competition law became a global concept with Adam Smith’s, ‘Wealth of Nations’. This started the conversation and discussion around laws of monopoly, restrictive trade practices, etc. While in England, similar legislation to regulate and prevent monopoly and restrictive trade practices were in place even around the 11th century, and an Act was passed in 1266 to regulate the market with the concern of fair prices, it was in the 19th century that the United States saw the enactment of laws to prevent monopoly in business practices.[iii] These are popularly known as the anti-trust laws. Modern competition law and antitrust statutes of the United States, which went on to have a great influence on European community competition laws are influenced by the Common Law Doctrine of Restraint of Trade. The enactment of the Sherman Act of 1890 and the Clayton Act of 1914 in the US marked the beginning of modern competition law.[iv] The adoption of the Competition Law in the US was due to the fall in the prices in the agricultural sector which was a consequence of monetary stringency, in the late 19th century.[v] This led to the formation of cartels in many other areas of Europe. Competition laws have been seen to be adopted more by the developing countries, rather than the developed countries, and this is said to be due to the rapid industrialization in various developing countries.
Competition law in India
After India’s independence, an economic model was adopted which was neither a market economy, like one in the US, nor a socialist economy, like the USSR. The model adopted by India was a mixed model, and was named after the 1st Prime Minister of the country, and was therefore called the Nehruvian Model. This mixed model enables both the private and the public sectors to co-exist. The intention behind the model was to promote social justice and inclusive growth.[vi]
Competition Act, 2002 wasn’t the first competition legislation in India, it was preceded by a 1969 legislation, which is the MRTP Act, that is, Monopolies and Restrictive Trade Practices Act. The MRTP Act was applicable until it was repealed in 2009. The MRTP Act was enacted with the aim to, prevent concentration of economic power, prohibit monopoly and monopolistic behaviour, prohibit unfair and restrictive trade practices and protect the consumers.[vii]
While there are various similarities between MRTP Act, 2969 and the Competition Act, 2000, they differ in their objective. While the MRTP Act aims at prevention of power concentration and prohibition of restrictive and unfair trade practices, the Competition Act aims at promoting competition. The transition from the MRTP Act to the Competition Act took place in 1991 when the need for economic reform was felt due to the changing economic conditions, and therefore, a change in approach in the form of promoting competition was required. In the same context, the Finance Minister of India in its budget speech in February 1999 made the following statement in the context of the then-existing MRTP Act- “The MRTP Act has become obsolete in certain areas in the light of international economic developments relating to competition laws. We need to shift our focus from curbing monopolies to promoting competition. The Government has decided to appoint a committee to examine this range of issues and propose a modern competition law suitable for our conditions.”
Taking this into consideration, the Raghavan Committee was constituted to recommend a suitable legislative framework relating to competition law for the country.[viii] In light of the same, the Raghavan Committee, put forth its contemporary competition legislation in October 1999, which was specially designed with the intent to be able to cope with international economic changes. The MRTP Act was replaced with the new Competition Act, 2002, not only due to its incapability to adapt to the international economic scenario but also due to its inadequacy in providing remedies to the complainants. Apart from the orders directing ‘cease and desist’ to the respondent, from the alleged monopolistic, the MRTP Commission wasn’t equipped to impose penalties or any other fines.[ix] Apart from this, another disadvantage of the MRTP Act is its feature of not providing extraterritorial jurisdiction, which the courts had reiterated again and again over a while.[x] Apart from these reasons, the MRTP Act did not define any key terms like cartels, unfair trade practices, etc, which gives space for the loopholes to exist in the law. All these defects/ disadvantages of the MRTP Act led to the requirement of another, newer competition law legislation, that would be airtight in comparison to the 1969 legislation. This gave way to the Competition Act, 2002.
The distinction between the MRTP Act, 1969 and the Competition Act, 2002
MRTP Act, 1969
The objective was to prevent concentration of power and prohibition of restrictive trade practices.
The Act is based on the pre- liberalization scenario.
Competition concepts and key terms are not clearly defined in the legislation.
The MRTP Commission did not have a role in advocacy in the legislation.
Many offences about competition are not defined and explained in the Act.
According to the Act, the Competition Commission was appointed by the government. The Commission was also granted very limited administrative and financial powers.
Did not impose penalties on committal of offences.
Had the rigid Rule of Law Approach.
Competition Act, 2002
The objective was to promote competition.
The Act is based on the post-liberalization scenario.
The key terms and various other competition concepts are defined in this Act.
The Competition Commission has a competition advocacy role to play according to the present legislation.
The Competition Commission is selected by the collegium/ search committee and can exercise more administrative and financial powers relatively.
Offences in this legislation attract a penalty.
Has a flexible Rule of Reason Approach.
B S N Joshi & Sons v. Ajoy Mehta[xi]
In this case, the court held that it was the duty of the state to prevent malpractice and the formation of a cartel which may have the effect of the increase in the prices of essential commodities/ public services like the generation of electricity. The court also said that the consumers must not have to bear the unwarranted high prices due to the malpractices which are related to the award of a government tender and that the State must take necessary measures regarding the same.
Girish Chandra Gupta v. Uttar Pradesh Industrial Development Corporation Limited & Ors.[xii]
The court, in this case, held that the MRTP Commission is empowered under section 12B, to make inquiries of the allegations to the restrictive trade practices and unfair trade practices. The MRTP Commission is empowered to do so to determine the realizable amount of compensation. The court also held that Sec 12B is not dependent on Sec 10 and 36B of the Competition Act, 2002.
Tata Engineering and Locomotive Company Limited v. Director (Research), MRTP Commission &Ors.[xiii]
In this case, the court dealt with the manner of interpretation of the term ‘unfair trade practices’ under Sec 36A, and held that the definition is not flexible or inclusive, but is exhaustive and limited in its scope. Concerning the present case, the allegations against the appellant do not amount to unfair trade practices.
A comprehensive analysis of the Competition Act, 2002 concerning the MRTP Act, 1969 shows us that the former creates a much-needed paradigm shift. The newer legislation not only is better equipped to deal with the economic changes in the present scenario, due to it being based on the changing economic scenario but also provides better clarity on the concept of competition laws. Thus, the evolution of competition laws in India from the MRTP Act, 1969 to the Competition Act, 2002, is a much-needed one.
[i]Report of High-Level Committee on Competition Policy, Department of Company Affairs, 2000.
[ii]Wilberforce (1966) p. 20.
[iii]Thomas B Nachbar, Monopoly, Mercantilism, and the Politics of Regulation, 91 VLR 1313 (2005).
[iv]The Antitrust Laws, FEDERAL TRADE COMMISSION, https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/antitrust-laws.
[v]Rahman, S., Antitrust in Times of Information Technology: An Analysis of Big Tech Monopoly Cases (Doctoral dissertation, University of Denver).
[vi]R Radhakrishna & M Panda, Macroeconomics of Poverty Reduction: India Case study, SEMANTIC SCHOLAR, https://www.semanticscholar.org/paper/Macroeconomics-of-poverty-reduction%3A-India-case-Radhakrishna-Panda/e14a85bea1ed8e64859e003125a2fa13a8987d22.
[ix]Vijay Kumar Singh, Competition Law and Policy in India: The Journey in a Decade, 4 NUJS L. Rev. 523 (2011).
[x]American Natural Soda Ash Corporation (ANSAC) v. Alkali Manufacturers Association of India (AMAI), (1998) 3 Comp LJ 152.
[xi](2009) 3 SCC (2009) 3 SCC 458.
[xii](2007) 1 SCC 228.
[xiii](2015) 10 SCC 734.