Antitrust laws also called competition laws are statutes to protect consumers from predatory business practices. Such laws are expected to regulate economic activity that monopolizes competition within the market with aims to protect consumers and small enterprises and ensures the freedom of trade.
The major focus of “The Competition Act 2002” and the predecessor Monopolistic and Restrictive Trade Practices Act, 1969 (MRTP Act) was structured around regulating monopolistic behaviour however the erstwhile MRTP Act was not equipped enough to combat the aspects of market competition brought about after the LPG (Liberalization, Privatization, Globalization) policies in the 1990s. The world in general and India in specific was going through a shift towards globalisation. India in particular was moving towards opening its economy in the wake of privatisation and liberalisation.
Aims and Objectives of the Competition Act 2002
As per the preamble of the Competition Act, the objective of this Act is “…keeping in view of the economic development of the country, for the establishment of a Commission to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India, and for matters connected therewith or incidental thereto”.
The true mandate of this Act is present in its Preamble. The Act is aimed to focus on promoting sustainable and fair competition in the market; preventing and restricting the practises that cause appreciable adverse effect on competition; to promote and protect the best interest of the consumers, and to ensure the freedom of free and fair trade in the market. BY promoting and protecting these principles enshrined in the preamble of the Act, we move towards a more efficient economic system. The primary focus of the Act is to ‘protect and promote competition’ which shall result in benefits for all the stakeholders associated with the market including the competitors as well as the consumers.
In the case of the Competition Commission of India v. Steel Authority of India Ltd & Anr, the Supreme Court observed, “The main objective of the Competition Law is to promote economic efficiencies using competition as one of the means of assisting the creation of market responsive to consumer preferences.” The National Competition Policy, 2011 also stated that the primary role of the competition policy in India is to ensure the welfare by encouraging the optimal allocation of resources and granting economic agents appropriate incentives to pursue productive efficiency, quality, and innovation. Competition has a close relationship with the growth of the economy. There is sufficient statistical data do deduce that there is a directly proportional relationship between competition and GDP growth. Competitiveness results in GDP growth by increasing employment. This further increases the competitiveness in the market which results in increased productivity. Subsequently, this reduces the prices for the consumers.
ANALYSIS OF THE ANTI_TRUST LAWS IN INDIA
The Competition Act was implemented in stages. One of the more significant changes were brought about in May 2009 when the provisions dealing with anti-competitive agreements as mentioned in Section 3 of the Act and the abuse of dominant position as mentioned in Section 4 of the Act were implemented. Section 5 and 6 of the Act dealing with combinations, acquisitions, and mergers were brought into force in June 2011.
There are four most important components of the Competition Act of 2002, namely anti-competitive agreements, abuse of dominance, regulation of combinations, and competition advocacy. The Competition Act is a comprehensive Act consisting of 66 sections and 10 chapters.
Competition Commission of India (CCI)
Section 7 of the Competition Act, 2002 calls for the establishment of the “Competition Commission of India” (CCI). The CCI was established as a body corporate having perpetual succession and a common seal with power as per Section 7(2) of the Competition Act. Section 8 of the Act sets out the composition of the CCI. The CCI consists of a Chairperson along with not less than two and not more than six other Members to be appointed by the Central Government. Section 8 (2) of the Act states that all the members of the CCI including the Chairperson shall be persons of ability, integrity, and standing who have relevant and special knowledge of the market and industry along with at least 15 years of professional experience in economics, business, trade, finance, accountancy, public affairs and matters related to competition law, et al. Section 10 talks about the term of office of Chairperson and other members of CCI. According to Section 10 (1) of the Act, The Chairperson and every other Member shall hold office as such for a term of five years from the date on which they enter upon their office and shall be eligible for re-appointment, provided that the Chairperson or other Members shall not hold office as such after they have attained the age of sixty-five years.
The Delhi High Court held in the case of Google Inc. v. CCI that CCI has the power to review or recall its own order, but the same shall be subject to certain restrictions and the same should only be done sparingly.
COMPAT – Competition Appellate Tribunal
The Competition Appellate Tribunal (COMPAT) was a statutory body established pursuant to provisions under the Competition Act to hear and dispose of any appeals against any decision or direction by the Competition Commission of India (CCI). It also had jurisdiction over claims for compensation that may arise from the findings of the CCI or the Appellate Tribunal in an appeal against the findings of the CCI. COMPAT was set up on 19th October 2009 with its headquarters at New Delhi.
The COMPAT has been replaced with the National Company Law Appellate Tribunal (NCLAT) since 2017.
Prohibition of Anti-Competitive Agreements
Section 3 of the Act is a very important provision dealing with anti-competitive agreements and arrangements. It states that enterprises or persons or associations are prohibited from entering into agreements concerning supply, distribution, storage, production, acquisition or control of goods or services that can impact the market in a manner that causes “appreciable adverse effect” on the competition in the relevant market. In other words, an anti-competitive agreement is an agreement having an appreciable adverse effect (AAEC) on the competition. All such agreements are considered void as stated in Section 3(2) of the Act. The term appreciable adverse effect (AAEC) however, has not been defined in the Act.
Anti-Competitive Agreements can broadly be divided into two categories,
- Horizontal Agreements
- Vertical Agreements
Horizontal Agreements are agreements between parties who happen to be at the same level of production in the market. All such agreements, if present shall be considered anti-competitive and illegal. The proviso to this particular subsection states that nothing contained in this sub-section shall apply to 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.
Agreements under Section 3(3) are mostly between two or more manufacturers, two or more distributors or two or more retailers or parties which deal with similar kinds of products in the same market. These agreements have a direct negative impact on effective competition and the prices of commodities in the market. Hence, these are considered void.
Vertical Agreements are agreements between parties or enterprises that happen to be at different levels or stages of production in the market. For these agreements, the presumption is not that they are always anti-competitive, but one has to establish that the agreement in question does indeed cause an appreciable adverse effect on competition for them to be declared void, unlike horizontal agreements.
There are certain exceptions to the section which are enumerated under Section 3(5) of the Act. The effect of Section 3(5) is that Section 3 dealing with anti-competitive agreements shall not be invoked in cases where the owner of any intellectual property rights under 6 enactments provided in Section 3 (5) (i) does anything in the exercise of their right to restrain the infringement of any of those rights or imposes reasonable conditions as may be necessary for the protection of any of those rights.
In the case of Mohit Manglani v. M/s Flipkart India Pvt. Lt.d & Ors it was alleged that e-commerce platforms were engaging in anti-competitive agreements by signing “exclusive agreements” with distributors and sellers of goods. The informant further alleged that this left the consumer with no option concerning purchasing the product other than to purchase it from the e-commerce website. The question before the court was whether the practise of entering into exclusive sale and purchase agreements by e-commerce platforms could be considered an anti-competitive agreement. It was held that such exclusive agreements were not in violation of Section 3 of the Act, instead, they were assisting the consumer to make an informed choice.
The CCI in M/s Jasper Infotech Private Limited (Snapdeal) v. M/s Kaff Appliances (India) Pvt. Ltd. held that the display of products at a price which was less than the pre-determined price agreed to by the distributor hinders their ability to compete. This was considered a violation of Section 3(4) read with Section 3(1) of the Act.
Abuse of Dominant Position
According to the Competition Act, 2002, dominant position means a position of strength or dominance in the relevant market that is maintained by an enterprise. That dominant position must enable the enterprise to operate independently of the competitive forces in that relevant market and affect competitors, consumers, or the relevant market in its favour. Dominant position is when one or more undertakings in a defined market use their position in that relevant market to affect price, supply, the amount of production and distribution, by acting independently of their competitors and the customers of that relevant market.
Section 4 of the Competition Act, 2002 prevents any enterprise or group from abusing its dominant position. The relevant section lists situations where there may be an abuse of dominant position.
An enterprise in dominant position performs any of the following acts:
- directly or indirectly, imposes unfair or discriminatory practices
- limits or restricts the production of goods or provision of any services in any form
- indulges in practice or practices resulting in denial of market access
- concludes contracts subject to acceptance by other parties of supplementary obligations which have no connection with the subject of such contracts; or
- uses its dominant position in one relevant market to enter into, or protect other relevant markets.
The Competition Act does not frown on dominance as such. An enterprise is free to grow as large as it pleases or achieve as big a market share as it can. The problem arises only when there is an abuse of dominance. Section 4 of the Act is attracted when an enterprise or firm, or group of enterprises or firms which are dominant in the market engage themselves in eliminating or affecting their competitor(s) in a way or when they deter the free entry of new players in the market which results in reducing or lessening the competition in that relevant market.
An important term and concept to understand this is the ‘relevant market’. Section 2(r) of the Act defines the term relevant market as, the market which may be determined regarding the relevant product market or the relevant geographic market or regarding both the markets.
Another important concept is that of ‘Predatory Pricing’. For instance, if one player in the market decides to sell their product, which is similar to the competitors in that relevant market at a price that is lower than that of their competitors intending to drive them out of the market, then that is known as Predatory Pricing, According to Explanation (b) to Section 4 of the Competition Act, 2002, 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.
A Cartel is a kind of an agreement between enterprises or firms in an industry to restrict competition for their mutual benefit. These agreements cater for minimum prices, setting limits on output or capacity, restrictions on non-price competition, division of markets between firms either geographically or in terms of the type of product, or agreed measures to restrict entry to the industry to create a monopoly in a given market. Usually, cartels involve an agreement between parties not to compete with one another and they can occur in any industry and can involve goods or services at the manufacturing, distribution, or retail level. These cartels form combinations to control prices and supply. These restraints are also known as anti-competitive, anti-trust, monopolies, trade combinations, restrictive trade practices, restraint of trade, or competition law.
Cartels are considered to pose a threat to competition by causing AAEC and affecting fair competition negatively. Cartels are more likely to affect the developing economies and markets due to the presence of favourable conditions which exist when there are few competitors; products are uniform and leave little scope for competition; the existence of communication chances between members; the market is hit by either excess capacity or general recession.
Section 3 (3) when applied with Section 3 (1) of the Act prohibits cartel-like behaviour or formation of cartels in India. Under the Act, a Cartel is presumed to have an adverse appreciable effect on competition (AAEC) until otherwise proved. Some of the effects of cartelization on the relevant market are mentioned below:
- Determining purchase or sale prices (Sec.3(3a))
- Limiting or controlling production/supply markets technical development, investment or provision of services (Sec.3(3b))
- Sharing of market/sharing of the source of production by the allocation of geographical areas, number of customer or types of goods or services (Sec.3(3c))
- Resorting to bid-rigging or collusive bidding (Sec.3(3d))
Rajasthan Cylinders & Ors v Union of India (2018)
In 2018, the Supreme Court gave a landmark judgment which changed the jurisprudence of Competition Law in India with regards to bid-rigging or collusive bidding. The Supreme Court in Rajasthan Cylinders and Tired Limited v. Union of India noted that to reach an adverse finding such as that of bid-rigging as under Section 3 (3) of the Competition Act, 2002, mere parallel pricing cannot satisfy the requirements. The case was in an appeal against the decision of COMPAT which upheld the decision of the CCI. The DG in his report in the case of Pankaj Gas Cylinder v. Indian Oil Corporation Limited (IOCL) stated that there seemed to be some sort of an anti-competitive agreement between the bidders. The CCI started a Suo Motu proceeding against the bidding companies and held them in violation of Sec 3 (3) of the Act. The CCI looked into the market conditions, barriers to new entrants in the market, the presence of an active trade association, identical products with little or no substitutes, and other ancillary factors. IOCL held about 48% of the market share which should be considered ‘substantial’. Along with that the fact that the market consisted of only 3 buyers, deterring new entrants. Moreover, the infamous meeting of the association which was alleged by the DG in his report was reportedly only attended by 19 parties, and the parties which were not present for this meeting had also quoted similar or near-identical bids. Considering these submissions, the CCI held the bidders in violation of Sec 3 (3) of the Act. After an appeal was filed, the COMPAT upheld the decision of the CCI stating that IOCL did not receive the honest competitive prices that it would have and hence the actions of collusive bidding caused AAEC. The appellants approached the Supreme Court of India. The Supreme Court took a very interesting approach in this case. Considering the arguments made by the counsel for the appellants, the apex court stated that market conditions are a very relevant factor while determining collusive bidding. Relying on the Excel Crop judgement, the Supreme Court reiterated that mere identical or parallel pricing is not sufficient to establish collusive bidding, other factors are also very important and relevant. The court in this case accepted the submission of the appellants stating that the market conditions were that of an oligopsony. In an oligopsony, the substantial share of the market is controlled by one party or a few parties. In such situations, the inter-relationship of the parties is such, that there can be no fair competition due to the dominant presence of the largest market shareholder. Here, IOCL controlled 48% of the market share which can safely be considered substantial. IOCL thus had control over the market prices, demand, and supply, et al. it also had the ability and power to affect the market price, demand, and supply in the identifiable ‘relevant market’. The appellants argued that in the present case the entire control was with IOCL and thus there can be no question of entering into an agreement for collusive bidding. Stating in other words, that the market conditions in the present case are unique and thus there is not pre-existing fair competition present in the market. The suppliers are powerless because the market is dominated by IOCL, which may control the market price, demand, and supply in the entire relevant market. In such a scenario, the bidders getting into an agreement of anti-competitive nature would simply not make sense or have any benefits. Hence, there was no bid-rigging and no cartelization proved against the appellants.
Conclusion Undoubtedly the Covid-19 pandemic has caused a disruption in businesses everywhere. Certain businesses are facing losses across sectors and the revenue has reduced greatly and then there are certain businesses engaged in essential services and other goods and services which have become a necessity in the pandemic. The Competition Act, 2002 is a very comprehensive and well-crafted piece of legislation that aims to regulate the market. The CCI and the appellant tribunals have, in a very short period of time attempted to create fruitful jurisprudence in the realm of competition law in India. We must keep in mind that the benefits of competition in the market are for all the stakeholders. Anti-trust laws are one of the most important requirements for economic development.
— Dhananjai Shekhawat, an intern at Ravindra Vikram Law Associates
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