Legal Aspects of Business
LAB:17
Hyundai India Fined Rs. 87 Cr for Anti-Competitive Practices
The commission found out that HMIL was involved in monitoring of the
maximum permissible discount levels through a discount control mechanism, and
such an arrangement resulted into resale price maintenance. Hyundai Motors was
also involved in the practice of recommending lubricants/ oils and the dealers were
mandated to use the recommended lubricants/ oils, in order to avoid being
penalised.
The commission in 2017 found HMIL to be a first-time offender (mitigating
circumstance) and, therefore, noted that a penalty of 0.3% over its average relevant
turnover in the last three financial years would be a proportionate penalty. HMIL
was, therefore, directed to pay Rs. 87 crore as penalty.
What is Competition?
• The process of rivalry between firms striving to gain sales
and make profits
• Motive: self-interest, but outcome mostly beneficial for the
society
• Competition is not just an event, but a process
Why Competition?
Competition promotes allocative & productive efficiencies,
innovation, and consumer welfare (Lower prices, Better
quality, Freedom of choice and Easy access)
• Is integral to a market-based economy;
• Is an essential condition for national competitiveness
“Competition contributes to economic growth more than
technology, tax-cuts, and budget policies.”
Types of Competition
• Price Competition: Winning customers by lowering price
• Non-price Competition: Winning customers by
advertising, offering after-sales-services, using sale
promotion tools, etc.
Ways of Competition
• Fair Competition: Fair means such as producing quality
goods, becoming cost-efficient, optimising the use of
resources, best technology, research & development,
etc.
• Unfair Competition: Unfair means such as fixing price
with the rivals, predatory pricing, disparaging or
misleading advertisements, etc.
Competition Law
• Aims to protect process of competition and not competitors
• Consist of a set of rules to curb Anti Competitive Practices
(ACPs)
• Sets up the Competition Authority for administration,
implementation & enforcement of the Act:
– Competition Commission of India (CCI) and
– Competition Appellate Tribunal (COMPAT)
• Over 120 countries have adopted Competition Law
The first legislation Monopolies and Restrictive Trade
Practices Act, 1969, proved inadequate and was
repealed.
The Competition Act 2002, was subsequently enacted
Erstwhile MRTP Act, 1969
The MRTP Act, as originally enacted, provided for the operation of
the economic system ensuring that there was no concentration of
economic power to common detriment.
Since the MRTP Act was enacted with the objective of preventing
concentration of economic power to the common detriment and to
control monopolistic, restrictive, and unfair trade practices, it suited the
requirements of a particular period of time prior to the beginning of the
new economic order.
The MRTP Act remained on the statute book for more than 30 years during
which, in spite of several amendments, it could not control the
anticompetitive practices like cartels, boycotts and refusal to deal, predatory
pricing, bid rigging, abuse of dominance.
Purpose of Competition Act, 2002
• To prevent the faulty and mischievous competition practice
• To promote and sustain competition in the markets
• To protect the interests of the consumers and
• To ensure the freedom of trade carried on by other
participants in markets
Under the Competition Act, 2002, governed by Ministry
of Corporate Affairs, the Competition Commission of
India (CCI) performs following four primary functions:
1. To prohibit anti-competitive agreements (Sec3);
2. To prohibit abuse of dominant position (Sec4);
3. To regulate potentially anti-competitive
combinations (mergers) (Sec5&6);
4. To perform competition advocacy (Sec49).
Competition Commission of India (CCI) - www.cci.gov.in
Maharashtra State Power generation Co Ltd Vs Coal India Ltd & MCL (CCI held CIL
to abuse its dominant position for charging higher prices for inferior quality)
BCCI Vs Surinder Singh Barmi (IPL granting franchise/team rights, BCCI fined 52 Cr.)
DLF Vs Belaire Owner’s Association ( Number of floors increased from 19 to 29
without informing the flat owners, fine levied on DLF 630 Cr.)
Dr HL Hiranandani Vs Ramakant Kini & CCI (Exclusive contract with Cryobanks and
denied access to Lifecell Intl. in their Hospital)
www.casemine.com
Anti- Competitive Agreements:
Collusion and other ACPs (Sec 3)
• Horizontal Agreements, including cartels
• Four types presumed to have appreciable adverse effect on
competition:
1. Price fixing
2. Quantity/supply limiting (Artificial Scarcity)
3. Market sharing/ allocation
4. Bid rigging/collusive bid
Burden of proof on the defendant.
• Cartel is an agreement between firms to act in concert on prices,
production levels or territories.
E.g. Cable TV in cities, Sand load
• Other anti-competitive practices- Vertical agreements, such as tied
sales, exclusive supply/distribution (Rule of Reason)
E.g. - Gas connection and gas stoves (Anand Gas Case)
- School uniforms and stationery
Horizontal and Vertical Agreements
Raw Material Raw Material Raw Material
Supplier Supplier Supplier
Manufacturer Manufacturer Manufacturer
Wholesaler Wholesaler Wholesaler
Retailer Retailer Retailer
“Appreciable Adverse Effect on Competition”
Anti-competitive agreements
(a) “tie-in arrangement” includes any agreement requiring a purchaser of
goods, as a condition of such purchase, to purchase some other goods
(Hindustan Motors Ltd case, required the buyers of cars to pay towards
the servicing of the cars with the sale price);
(b) “exclusive supply agreement” includes any agreement restricting in
any manner the purchaser in the course of his trade from acquiring or
otherwise dealing in any goods other than those of the seller or any other
person;
(c) “exclusive distribution agreement” includes any agreement to limit,
restrict or withhold the output or supply of any goods or allocate any area
or market for the disposal or sale of the goods;
(d) “refusal to deal” includes any agreement which restricts, or is likely to
restrict, by any method the persons or classes of persons to whom goods
are sold or from whom goods are bought;
(e) “resale price maintenance” includes any agreement to sell goods on
condition that the prices to be charged on the resale by the purchaser
shall be the prices stipulated by the seller unless it is clearly stated that
prices lower than those prices may be charged.
Eg. Discuss About Price Increase, Timing Of Price
Increase With Competitors
Retail price is too
cheap. Why don’t I agree. Let’s
we increase the implement the
wholesale price by price increase
5%? next month.
Competitors Sales Person
ABC Sales Person
E.g. Discuss About Customers And Territory With
Competitors
Okay. East district is
West district of X state
our territory. Promise to
is our territory. Do not
us that you will not sell
sell your products in
your products at our
our territory.
territory.
ABC Sales Person Competitors Sales Person
Abuse of Dominance (Sec 4)
• Dominance means having authority or control.
• Cause of concern is not dominance but its abuse.
• Abuse of Dominance:
1. Exploitative practices (towards consumers): excessive pricing,
discrimination or tied selling or IPR abuses
Eg. Monsanto-Mahyco pricing of Bt Cotton seeds
2. Exclusionary practices (towards competitors): predatory pricing
and refusal to deal.
Eg. Truck unions not allowing non-member trucks
CCI vs Google: The Competition Commission of India (CCI) last year
brought to an end a seven year long investigation into antitrust violations
by Google, fining the search giant Rs 136 crore ($21 million) or 5% of its
India revenue. The decision comes on the heels of the ruling by the
European Commission last year, that fined Google a whopping $2.7 billion
dollars for manipulating search results to favour its own shopping services.
(Feb.,2018). CCI has found Google to have abused its dominance in the
ranking of search results prior to 2010, prioritisation of its own Google Ad
services over others and in its agreements with publishers to the exclusion
of Google’s competitors.
Search results before and after proposed implementation of EC’s directives.
Credit: European Commission.
Combinations (Sec 5 & 6)
• Combinations include mergers: a fusion between two or
more firms.
• Takeover/acquisition: purchase of all or sufficient number of
shares of other firm(s).
• Cause of concern is not Combinations but its likelihood to
result in monopoly or dominance in market.
Eg. In past few years, takeover of Indian pharma companies
without any merger review (Sun Pharma & Ranbaxy, Lupin
and Gavin, Dr Reddy’s and UCB)
https://blog.ipleaders.in/top-ten-acquisitions-in-the-pharmaceutical-sector-in-india/
Competition Advocacy (Sec 49)
(by Competition Commission of India on promoting
competition)
• With Government/Regulators - to promote pro-
competition policies, laws, and regulations. E.g. those
relating to disinvestment, concessions, industrial
policy, international agreements, entry/exit policies
etc.
• With industry, trade associations etc. - to strengthen
competition culture and improve compliance.
Other functions of CCI
• Perform the function of competition advocacy effectively
and promote competition culture
E.g. RBI favouring public sector banks
• Cooperation with other regulatory agencies
E.g. With sector regulators on competition issues
• Cooperation with other competition agencies
E.g. With competition agencies abroad
Competition Enforcement and Consumer Welfare
Anti Competitive
Practices restricting ACCESS
access
Poor quality
Competition goods/services by a firm QUALITY
abusing dominant
Authority’s position Consumer
Enforcement
Actions
Welfare
Tied-selling restricting
consumer choice CHOICE
Anti Competitive
Practices leading to PRICE
excessive prices
