Competition Act 2002

Objectives of the Competition Act

The Act seeks to provide the legal framework and tools to ensure competition policies are met, to
prevent anti-competition practices and provide for the penalisation of such acts. The Act protects
free and fair competition which protects the freedom of trade.

The Act seeks to prevent monopolies and also to prevent unnecessary intervention by the
government. The main objectives of the Competition Act, 2002 are:

 to provide the framework for the establishment of the Competition Commission.

 to prevent monopolies and to promote competition in the market.

 to protect the freedom of trade for the participating individuals and entities in the market.

 to protect the interest of the consumer.

Anti-Competitive Agreements

In simple words, Anti-Competitive agreements are agreements that are made by two or more
companies competing in the same market to fix prices or reduce stocks etc, so as to manipulate the
market favourably for them. This has the effect of the companies reducing the competition in the
market which adversely affects the end consumer.

The Competition Act, 2002 defines anti-competitive agreements as such in section 3 where it states,
“No enterprise or association of enterprises or individuals or association of individuals may enter into
an agreement regarding production, supply, distribution, storage, acquisition or control of goods or
provision of services which may adversely affect the competition in the Indian market”.

Such agreements are termed as AAEC agreement, which means the Appreciable Adverse Effect on
Competition agreements. The Act expressly states that such an agreement shall be void. An AAEC
agreement is classified as any agreements that result in:

 Directly affects purchase or sale prices.

 Indirectly affects purchase or sale prices.

 Limits production.

 Limits supply.

 Limits technical development.

 Limits service provision in the market.

 Leads to the rigging of bids.

 Leads to collusive bidding.

Abuse of Dominant Position

The abuse of the dominant position is prohibited by Section 4 of the Competition Act. Abuse of
dominant position is defined under the second part of the same Section. According to the act
dominant position means any enterprise that enjoys the position and power in the Indian market
which enables it to:

 Operate independently of competitive forces in the relevant market.

 Affect its competition, consumer or the relevant market in its favour.

For example, predatory pricing is a practice that is seen to be an abuse of the dominant position. In
simple words when a dominant enterprise engages in AAEC acts, it is considered an abuse of the
dominant position.

The difference between the definition of anti-competitive agreements and abuse of dominant
position is that in anti-competitive agreements there have to be two or more parties and it can be
between any enterprise or firm and doesn’t require there to be a dominant firm involved. In abuse of
dominant position, it can be done by a single party but the party has to be in a dominant position in
the relevant market.

Remedies

Remedies against AAEC agreements and abuse of dominant position are provided by the
Competition Commission of India. Upon a review and enquiry into the alleged practices the
Competition Commission may pass the following orders:

 Direct the discontinuance of such practices.

 Impose a penalty that is less than 10% or the turnover of the preceding three financial years;
in the case of a cartel, the penalty shall be 10% or three times the turnover of every financial
year and shall continue for the period of continuance of such practices.

 Direct the modification of such an agreement or abuse so as to curtail its adverse effect upon
the competition of the market.

 Pass any order that it may so deem fit.

Competition Commission

The Competition Commission of India is established under the Competition Act, 2002. It is a
statutory body that has the power to govern and enforce the Competition Act including penalties. It
was established when the need for a healthy competitive environment became necessary following
liberalisation under the Vajpayee government.

The Commission is composed of a chairman and a minimum of 2 board members and a maximum of
6 board members. These members are required to have a minimum of 15 years of experience in their
respective fields.

Its objectives, duties and powers are enumerated in the Competition Act, 2002. Its main duty and
object is to ensure that the Indian markets maintain a healthy and fair competitive environment and
is granted the power to ensure such an environment and penalise any acts adversely affecting its
duties.

Regulation of Combination

The term combination has a broad definition under the Act, it includes:
  any acquisition of shares,

 voting rights,

 control of assets, and

 party to merger or amalgamation of enterprises.

Any person/enterprise shall not enter into a combination that is likely to have an adverse effect on
the competition and such a combination will be void. If any person/enterprise proposes to enter into
a combination he shall intimate the Competition Commission of India within 30 days of:

 Approval of the proposal relating to mergers and amalgamation by the Board of Directors of
the enterprises involved in the process.

 Execution of any agreement pertaining to acquiring control.