The Competition Act, 2002

Timeline
• MRTP ACT, 1969 For Prohibition of Monopolistic,
Unfair & Restrictive Trade Practice
• Liberalization – 1991 After this – difficulty
arose to administer present market
• Competition Act, 2002 and
Competition(Amendment) Act, 2007 to meet
the requirement of the highly competitive market
1. Anti-Competitive Agreements 2. Abuse of
Dominance 3. Combinations 4. Competition
Advocacy
 Empowering provision under the
Constitution of India
• Entry 21 of List III of VIIth Schedule to the
Constitution empowers the State to control
and regulate:
• Commercial and industrial monopolies,
combines and trusts
 What is competition
• A situation in a market in which sellers
independently strive for buyers patronage
to achieve business objectives such as
profits, sales or market share.
• It is the foundation of an efficiently working
market system
 Why have competition
• The ultimate objective of competition is to
secure the interest of the consumer – it
provides wider choices at lower prices.
• It leads to optimal allocation of resources,
innovation, higher productivity and
accelerated growth
• It preserves economic and political
democracy
 Contd/-
• It is the foundation of an efficiently working
market system.
• 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
• It is not automatic – needs to be nurtured
 Preamble of the Act
• The Competition Act seeks to
– (i) establish a Commission to prevent practices
having adverse effect on competition
– (ii) to promote and sustain competition in markets
– (iii) to protect the interests of consumers
– (iv) to ensure freedom of trade carried on by other
participants in markets, in India, and for matters
connected therewith or incidental thereto
 Defnitions
• Acquisition. It means, directly or indirectly, acquiring or agreeing to
acquire–
Shares, voting rights or assets of any enterprise; or 2. Control over
management or control over assets of any enterprise.
• Agreement. It includes any arrangement or understanding or action in
concert,–
whether or not, such arrangement, understanding or action is formal or in
writing;
• Cartel. It includes an association of producers, sellers, distributors, traders
or service providers who, by arrangement amongst themselves, limit,
control.
• Commission. It means the Competition Commission of India established
under
s.7(1).
• Consumer. It means any person who:Buys any goods for a consideration
which has been paid or promised or partly paid and partly promised, or
under any system of deferred payment
 Defnitions
• Enterprise. It means a person or a department of the
Government, who or which is, or has been, engaged in
any activity, relating to the production, storage, supply,
distribution, acquisition or control of articles of goods.
• Goods. It means goods as defined in the Sale of Goods
Act, 1930.
• Person. It includes the following: (i) an individual; (ii) a
Hindu Undivided Family; (iii) a company; (iv) a firm.
• Practice. It includes any practice relating to the carrying
on of any trade by a person or an enterprise.
• Price. In relation to the sale of any goods or to the
performance of any services, price includes every
valuable consideration.
 Defnitions
• Relevant Market: Sec 2® It means the market which may be determined
by the Commission with reference to the relevant product market
• Relevant Geographic Market. It means a market comprising the area in
which the conditions of competition for supply of goods or provision of
services or demand of goods.
• Relevant Product Market. It means a market comprising all those products
or services which are regarded as interchangeable or substitutable by the
consumer.
• Service. It means service of any description which is made available to
potential users and includes the provision of services in connection with
business of any industrial.
• Shares. It means shares in the share capital of a company carrying voting
rights
• Statutory Authority. It means any authority, board, corporation, council,
institute, university or any other body corporate, established by or under any
Central, State.
• Trade. It means any trade, business, industry, profession or occupation
relating to the production, supply, distribution, storage or control of goods.
• Turnover. It includes value of sale of goods or services.
 Competition Act 2002
• The Act mandates the Competition
Commission of India (CCI) to
– Prohibit and enquire into Anti Competitive
agreements
– Prohibit and enquire into abuse of dominant
position
– Regulate Combinations
– Render opinion on competition issues to
statutory authority/ Government
– Undertake competition advocacy
 Five Dimensions of the Act

 Anti-competitive Agreements [Sec. 3]

 Abuse of Dominance [Sec. 4]
 Combinations, include acquisition of shares, voting
rights, assets/control, mergers, amalgamations and
takeovers
 Advocacy - maximum impact with least intervention
 Advisory- to tame anti competitive public action .

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 Applicability
• Enterprise includes “person” or
“department of Government” engaged in
commercial activities.
• Applies to ‘goods’ and ‘services’
• Profession and occupation are within its
ambit
• Consumer includes commercial buyer.
• Inapplicable to soverign functions
• Exports outside its purview
 Anti Competitive agreements
• Anti-competitive agreements.- (1) No
enterprise or association of enterprises or
person or association of persons shall
enter into any agreement in respect of
production, supply, distribution, storage,
acquisition or control of goods or provision
of services, which causes or is likely to
cause an appreciable adverse effect on
competition within India.
 Contd-
• Any agreement entered into in
contravention of the provisions contained
in sub-section (1) shall be void.
 Anti competitive agreements
• Any agreement entered into between enterprises or associations of
enterprises or persons or associations of persons or between any
person and enterprise or practice carried on, or decision taken by,
any association of enterprises or association of persons, including
cartels, engaged in identical or similar trade of goods or provision of
services, which -
• (a) directly or indirectly determines purchase or sale prices;
• (b) limits or controls production, supply, markets, technical
development, investment or provision of services;
• (c) shares the market or source of production or provision of
services by way of allocation of geographical area of market, or type
of goods or services, or number of customers in the market or any
other similar way
• (d) directly or indirectly results in bid rigging or collusive bidding,
shall be presumed to have an appreciable adverse effect on
competition:
 Exceptions
• Any agreement entered into by way of joint
ventures if such agreement increases
efficiency in production, supply,
distribution, storage, acquisition or control
of goods or provision of services
 Exemptions
• Nothing contained in this section shall restrict-
• (i) the right of any person to restrain any infringement of,
or to impose reasonable conditions, as may be
necessary for protecting any of his rights which have
been or may be conferred upon him under-
• (a) the Copyright Act of 1957
• (b) the Patents Act of 1970
• (c) the Trade and Merchandise Marks Act of 1958
• 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
 Two kinds of anti-competitive
agreements
• HORIZONTAL RESTRAINTS : • VERTICAL RESTRAINTS :

• CARTELS {FIXING PURCHASE • TIE-IN ARRANGEMENTS

• OR SALE PRICES (EXPORT
• CARTELS EXEMPTED) } • EXCLUSIVE SUPPLIES
• BID-RIGGING (COLLUSIVE
• TENDERING) • EXCLUSIVE DISTRIBUTION
• SHARING MARKETS BY
• TERRITORY, TYPE ETC. • REFUSAL TO DEAL
• LIMITING PRODUCTION,
• SUPPLY, TECHNICAL
• RESALE PRICE
• DEVELOPMENT MAINTENANCE

• THE ABOVE ARE “PER SE” • ADJUDICATION BY RULE OF

ILLEGAL. (Void) REASON
 Horizontal and Vertical Agreements

Raw Material Raw Material Raw Material

Supplier Supplier Supplier

Manufacturer Manufacturer Manufacturer

Wholesaler Wholesaler Wholesaler

Retailer Retailer Retailer

 Agreements amongst competitors
(Per se Approach)
• Agreements between enterprises or persons engaged in similar
trade of goods or provision of services.
• Agreements including cartels that:
(a) fix prices,
(b) limit or control production,
(c) allocates markets or customers, and
(d) rig bids/collusive bidding (explosive manufacturers)
are presumed to have an appreciable adverse effect on
competition (AAEC)

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 Horizontal Agreements (Contd.)

• Illustrative cases:
– Cartels- engaged in same or similar
products- Cement,
– Bid rigging/collusive bidding- LPG Cylinders,
Phosphorus, Explosive suppliers
– Market Allocation
– Limiting of production, supplies
 The Leniency Provision

• The Act provides for imposition of lesser penalty by the CCI where
a person makes FULL, TRUE and VITAL disclosure of a cartel to
the CCI;
• The Leniency System is targeted at cartel participants and seeks
to induce participants to break rank and turn approver against
other cartel members.
• A first, second and third applicants can avail the benefit of a
reduction in penalty of up to 100% or 50% or 30% respectively.
• Confidentiality is the bed rock of an effective leniency regime.

10
 Information Exchange
• What is information exchange?
• What is competitive sensitive information?
• Who is a competitor?
• When is information exchange between
competitors a concern?
• Why does law prohibit exchange of competition
sensitive information?

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e.g. DISCUSS ABOUT PRICE INCREASE, TIMING OF PRICE
INCREASE WITH COMPETITORS

Retail
Retail price
price is
is too
too
cheap.
cheap. Why
Why don’t
don’t I agree. Let’s
we
we increase
increase the
the implement the
wholesale
wholesale price
price by
by price increase
5%?
5%? next month.

Competitors Sales Person

ABC Sales Person

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e.g. DISCUSS ABOUT CUSTOMERS AND TERRITORY
WITH COMPETITORS

Okay. East district is

West district of A city
our territory. Promise
is our territory. Do not
to us that you will not
sell your products in
sell your products at
our territory.
our territory.

ABC Sales Person Competitors Sales Person

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 Contact with former boss (Fictional
Case)

Long time no see. I did not know

you were working to get this
business for Philips. Why
don’t we keep in touch and
exchange information?

Ex ABC Sales Person sales person of ABC

working at Competitor

What should you say? Think of a script.

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 Answer
• " I agree. Give me your contact details so that we can
exchange information.”

• " It is really nice to see you again. Why don’t we go out

for dinner tonight. There are lots of things that we
should talk.”

• Leave the place after saying "It is nice meeting you

again. But we are competitors now, and competing with
each other for this deal. It is against our company’s
policy to interact with competitors. I am afraid I will
have to say “I have to go.”
28
 Trade Associations
• What is the role of a trade association?
• What are actions that may not be carried out by
a trade association?
• Why should a trade association not facilitate the
exchange of competitive sensitive information.
• What are office bearers held liable for
infringement by a trade body?

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 Vertical Agreements
(Rule of Reason)
• Agreements between enterprises at different stages or levels
of the production chain.
• Such agreements include
(a) tie-ins
(b) exclusive supply
(c) exclusive distribution
(d) refusal to deal
(e) resale price maintenance
• Less sensitive than the Horizontal Agreement.

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 Abuse of Dominant position
• "dominant position" means a position of strength,
enjoyed by an enterprise, in the relevant market, in India,
which enables it to- (i) operate independently of
competitive forces prevailing in the relevant market; or
(ii) affect its competitors or consumers or the relevant
market in its favour
• (b) "predatory price" means the sale of goods or
provision of services, at a price which is below the cost,
as may be determined by regulations, of production of
the goods or provision of services, with a view to reduce
competition or eliminate the competitors
 Abuse of dominant position
• 1) No enterprise shall abuse its dominant
position.
• (2) There shall be an abuse of dominant position
under sub-section
• (1), if an enterprise,- (a) directly or indirectly,
imposes unfair or discriminatory- (i) condition in
purchase or sale of goods or service; or (ii) price
in purchase or sale (including predatory price) of
goods or service.
 Abuse of Dominant Position

• The Act does not prohibit dominant position – it only frowns upon
the ‘abuse’ thereof.

• Dominant Position refers to a position of strength enjoyed by an

enterprise or group in the relevant market, in India, which enables it
to -

– Operate independently of competitive forces prevailing in the

relevant market; or
– Affect its competitors or consumers or the relevant market in its
favor.
– ‘Group’ is open ended.
 What is Dominance?
 Dominance not anti-competitive; abuse is
 Dominance of an “enterprise”:
 ability to behave independent of competitive
forces;
 affects competitors or consumers in its favor;
 13 factors under Sec. 19(4)
 Dominance in a “relevant market”
 RM = RPM + RGM
 RPM = Coke and Fanta?
 RGM = South Delhi or NCR?

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 Abuse of Dominance (2/2)

 Denial of market access

– Creating barriers which increase cost of entry
– Contractual restrictions (selective licensing)

 Imposing supplementary conditions – no

relation to subject matter of contract
– Commercially onerous

 Leveraging dominance
– Dominance in a RM abused to enter/protect in another
RM
– ‘Protect’ – defensive leveraging

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 Section 19(4))
 Vertical Integration
 Statutes resulting in
dominance/monopoly
 Indian Railways? [Arshiya]
 Entry barriers
 Regulatory
 Contractual
 Countervailing buyer power
 enterprise with a high market share may not be
dominant – in case of high countervailing power
[Kornsas AD Cartonboard COMP/M. 4057]
 Social obligations and costs
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 Abuse of Dominance

 Imposing unfair/discriminatory condition or

price:
– Commercially onerous
– Favourable terms to affiliate companies
– Excessive/predatory pricing

Limiting/restricting production or
scientific development:
– Adverse impact on innovation in a RM
– Adverse impact on competitors’ output

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 Abuse of Dominance

 Denial of market access

– Creating barriers which increase cost of entry
– Contractual restrictions (selective licensing)

 Imposing supplementary conditions – no

relation to subject matter of contract
– Commercially onerous

 Leveraging dominance
– Dominance in a RM abused to enter/protect in another
RM
– ‘Protect’ – defensive leveraging

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 Types of Abuses

• Exploitative Abuses– i.e., conduct which results in exploitation of others in

the value chain, for e.g.,
 imposition of unfair or discriminatory conditions
 imposition of unfair or discriminatory prices e.g., predatory pricing.
• Exclusionary Abuses – conduct which interferes with the competitive
process, for e.g.,
 Making conclusion of contract subject to acceptance of supplementary
obligations
 Denial of market access
 Limiting production of goods, provision of services; scientific development;
 Using dominance in one relevant market to enter into or protect other
relevant market.
• Illustrative cases: DLF , Coal India.
 How is an inquiry initiated
 The CCI may institute inquiry in the wake of:-
 Filing of Information by any person or consumer or association of consumer/trade; or
 Suo motu takes cognizance; or
 Filing of a reference by State/Statutory authority
 CCI may pass an order
 directing the DG to investigate; or
 pass an order dismissing the matter
• Powers of the DG
– Requisition of information from the parties
– Requisition of information from ex-employees, distributors etc.
– The DG can summon and record evidence during investigation.
– DG can exercise the powers of ‘Search and Seizure’ (“Dawn Raids”).
– DG are vested with the powers of a Civil Court to aid Inquiry/Investigations
 Contd/-

• NSE-MCX case (Multi Commodity Exchange

(MCX) v. National Stock Exchange (NSE) -
Case No. 13/2009)
• Relevant Market: stock exchange services in
the CD segment in India, cluster market not
considered – consumer preference
– SSNIP test (‘Hypothetical Monopoly Test’) – not
applicable as:
• CD segment did not exist prior to August 2008;
• transaction/data fee – not been charged by any other
market player since inception; and
• transaction fee etc. insignificant to constitute
substitutability.
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 Abuse of Dominance
 Dominant Position:
 Market share (in CD segment) analysis
 DG findings – NSE 47-48%; MCX-SX 52-53%
 CCI findings – NSE 30%; MCX-SX 34%; USE 36%
 Despite low mkt. share and new entrant – CCI
held NSE dominant
 Evaluation of strength based on:
 Not just mkt. share – but comparative
advantages in terms of financial resources,
technical abilities, brand value, historical legacy

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 Abuse of Dominance

 Pricing:
 CCI investigated the zero price policy of NSE
i.e. waiver of fees relating to transaction and
admission
 NSE did not collect annual subscription
charges, provided data feed w.r.t CD segment
for free
 CCI – zero price policy of NSE unfair:
 MCX-SX only in CD segment – no other income;
 MCX-SX & NSE not equal – resources, nationwide
presence etc.
 Leveraging:
 CCI – NSE cross subsidized ‘monopoly’ position
in non-CD segment – to acquire dominant
position in the CD segment 43
 Remedies
• Remedies
– Cease and desist
– Structural remedies (Divestiture)
– Behavioural remedies (Licensing)
– Compliance Programmes
• Competition authority cannot direct an enterprise
to deal with a competitor
 “a trader or manufacturer engaged in an entirely private
business, is free to exercise his own independent
discretion as to the parties with whom he will deal” [United
States v Colgate & Co. 39 S.Ct 465 (1919)]
 Verizon Communications v. Law Offices of Curtis v Trinko
LLP [540 US 398 (2004)]
44
 A word of caution in communication

• Email, SMS, FAX, Communication in any e-mode are

admissible evidence- irretrievable once clicked/sent.
• Skillful communication is imperative.
• Do not sound guilty .
• Do not use expression like “destroy after reading”.
• Avoid the exaggerated use of “power” words(e.g. “we’ll
destroy them”, “we will nail them to the wall”)
• Avoid giving the false impression that a customer is being
given favored treatment( e.g. “None of our other customers
is getting this special discount”).

45
 A word of caution in communication
• Do not use terms
(Contd.)
such as “control”, “power” or
“dominance” when referring to the company’s present
or future position;
• Do not use vivid words or images suggesting combat
(“crush”, “destroy”, “block access”, “conquer”,
“dominate”) to describe the company’s marketing
practices.
• Do not use the term “market” to refer to parts of a
nation. For cities, regions, and other limited geographic
areas, use terms such as “area", "region” or the like.

46
• Through a catena of cases, the Competition Commission
of India has identified as to what constitutes abuse of
dominant position to fall under the purview of anti-
competitive practices.
• Zero pricing by a dominant player amounts to
annihilating or destructive pricing being beyond the
parameters of promotional or penetrative pricing.1
• .
 2. Bharti Airtel Limited Vs. Reliance Industries Limited & Reliance Jio
Infocomm Limited (Case No. 03 of 2017) CCI

• By providing free services cannot by itself raise

competition concerns unless the same is offered by a
dominant enterprise and shown to be tainted with an
anti-competitive objective of excluding competition/
competitors2
• In a competitive market scenario, where big players are
already operating in the market, it
would not be anticompetitive for an entrant to
incentivise customers by giving attractive offers and
schemes.2
2. Bharti Airtel Limited Vs. Reliance Industries Limited & Reliance Jio
Infocomm Limited (Case No. 03 of 2017) CCI

• Providing services below the average

variable cost unless it coupled with
abuse of dominant position does not
amount to predatory pricing in
contravention to the Competition Act
(Section 4)2
 3. Fast Track Call Cab Pvt. Ltd. & Meru Travel Solutions
Pvt. Ltd Vs. ANI Technologies Pvt. Ltd. (Case No. 6 & 74 of
2015) CCI
• Market share is one of the indicators for assessing
dominance, but the same cannot be seen in
isolation to give a conclusive finding3.
• No restriction affecting the entry or expansion of
other entrants into the market in indicative of lack of
abuse of dominant position3.
 3. Fast Track Call Cab Pvt. Ltd. & Meru Travel Solutions
Pvt. Ltd Vs. ANI Technologies Pvt. Ltd. (Case No. 6 & 74 of
2015) CCI
• The narrow interpretation of the concept of dominance
would mean that an entrant armed with a new idea, a
superior product or technological solution that
challenges the status quo in a market and shifts a large
consumer base in its favour would have to
be erroneously held dominant.3
• The interpretation of the Competition Act, 2002,
does not allow more than one dominant player.3
 Regulation of combinations
• Regulation of Combinations
– Section 5 deals with combination of enterprises and persons. The
acquisition of one or more enterprises by one or more persons or
acquiring of control or merger or amalgamation of enterprises
under certain circumstances specified below shall be construed as
combination. These circumstances are:
• Acquisition of control, shares, voting rights or assets.
• Acquisition of control over production, distribution,
or trading.
• Merger or Amalgamation.
• Regulation of Combinations
– Section 6, provides that no person or enterprise shall
enter into a combination which is likely to cause or
causes an appreciable adverse effect on competition
within the relevant market in India. Such a combination,
if entered into, shall be void.
 COMBINATIONS
MERGERS/AMALGAMATIONS
PEJORATIVE EFFECTS
1. REDUCTION IN NUMBER OF PLAYERS
2. ACQUISITION OF ENORMOUS ECONOMIC STRENGTH
3. DISCOURAGEMENT OF NEW ENTRANTS
4. DICTATION OF PRICES
5. DOMINANCE
REGULATION ON COMPETITION PERSPECTIVE
1. COMPETITION LAW TO HAVE SURVEILLANCE OVER
COMBINATIONS BEYOND A THRESHOLD LIMIT
(Assets > Rs.1000 Crores or Turnover > Rs.3000 Crores )
2. NOTIFICATION OF COMBINATIONS MANDATORY
3. CCI MANDATED TO DECIDE WITHIN 210 WORKING DAYS
ELSE DEEMED APPROVAL
 Establishment of Commission.

• The Central Government may, by notification, appoint, a

Commission to be called the "Competition Commission of India".
• The Commission shall be a body corporate by the name aforesaid
having perpetual succession and a common seal with power,
subject to the provisions of this Act, to acquire, hold and dispose of
property, both movable and immovable, and to contract and hall, by
the said name, sue or be sued.
• The head office of the Commission shall be at such place as the
Central Government may decide from time to time.
• The Commission may establish offices at other places in India.
 Composition of Commission
• The Commission shall consist of a
Chairperson and not less than two and not
more than ten other Members to be
appointed by the Central Government.
• The Chairperson and other Members shall
be whole-time Members
 Qualifications
• The Chairperson and every other Member shall
be a person of ability, integrity and standing and
who, has been, or is qualified to be, a judge of a
High Court, or, has special knowledge of, and
professional experience of not less than fifteen
years in international trade, economics,
business, commerce, law, finance, accountancy,
management, industry, public affairs,
administration or in any other matter which, in
the opinion of the Central Government, may be
useful to the Commission.
 Term of office
• The Chairperson and every other Member shall
hold office as such for a term of five years from
the date on which he enters upon his office and
shall be eligible for re-appointment
• A vacancy caused by the resignation or removal
of the Chairperson or any other Member under
section 11 or by death or otherwise shall be
filled by fresh appointment
 Duties of Commission.
• It shall be the duty of the Commission to
eliminate practices having adverse effect on
competition, promote and sustain competition,
protect the interests of consumers and ensure
freedom of trade carried on by other
participants, in markets in India: Provided that
the Commission may, for the purpose of
discharging its duties or performing its functions
under this Act, enter into any memorandum or
arrangement with the prior approval of the
Central Government, with any agency of any
foreign country
 Inquiry
• Inquiry into certain agreements and
dominant position of
• enterprise.-
– (1) The Commission may inquire into any
alleged
– contravention of the provisions or on its own motion
– On (a) receipt of a complaint, accompanied by such fee
as may be determined by regulations, from any person,
consumer or their association or trade association; or (b)
a reference made to it by the Central Government or a
State Government or a statutory authority.
 Procedure
• CCI can direct the Director General to investigate, if
prima facie case exists.
• If there is no prima facie case, the complaint shall be
dismissed.
• DG after inquiry shall submit the report to CCi who shall
send a report to the parties, central government or state
government.
• If DG’s report says no contraventions, then the
complainant shall be given an opportunity to rebut DG’s
findings. CCI can dismiss or order further enquiry.
• No enquiry shall take place after the expiry of 1 year
from the date on which combination has taken effect
 Powers
• direct to discontinue and not to re-enter
such agreement or discontinue such
abuse of dominant position, as the case
may be
• impose penalty
• direct division of an enterprise enjoying
dominant position to ensure that such
enterprise does not abuse its dominant
position
 Powers
• Where the Commission is of the opinion
that the combination has, or is likely to
have, an appreciable adverse effect on
competition, it shall direct that the
combination shall not take effect.
• Power to grant interim relief.
• Power to award compensation.
 Competition advocacy

• The Commission shall take suitable

measures, as may be prescribed, for the
promotion of competition advocacy,
creating awareness and imparting training
about competition issues