A flexible, dynamic, and competitive private sector is increasingly recognised as critical to long-term economic success. The increasing competition allows consumers to choose from a wider range of higher-quality products at lower prices. The competition also promotes accountability and openness, as well as the reduction of corruption and lobbying. Competition, as a well-functioning market system, fosters business and expands options. According to economic theory, prices and quantities in a competitive market equilibrate to levels that provide efficient outcomes. Anti-competitive practices are more common in less developed markets. Competition Act and policy does not kill competition but encourages competition by penalising anti-competitive behaviour like anti-competitive agreements and abuse of dominance situations. Competition in any field is regarded as a positive practice for expanding prospects and acting as a motivator, as long as it is conducted in a legal manner. Perfect competition is a market outcome in which all businesses sell a homogenous and perfectly divisible product, all producers and consumers are price takers, all firms have a modest market share, and buyers and sellers receive all essential market information, including price and quality of the product.
Most countries’ competition laws aim to improve consumer welfare, ensure fair trading, boost economic efficiency, and prevent market power abuse (Dominant Position). The three avenues of enforcement that most competition laws provide for are:
- Anti-competitive agreements including Cartels
- Dominance abuse, and
- Mergers that have the potential to be anti-competitive.
The Competition Act was passed in 2002 and went into effect on January 13, 2003. The act’s objectives are stated in its preamble, which states that the act will establish a Commission (the Competition Commission of India) to prevent anti-competitive practices, promote and sustain competition in the market, protect consumers, and ensure the freedom of trade carried on by other market participants. Anti-competitive agreements, abuse of dominant position, and mergers and acquisitions are among the three anti-competitive practises regulated by the Act (Combinations).
The key criterion for anti-competitive practises regulation is that they should not have a significant negative impact on competition within India. Section 3 of the Act defines anti-competitive agreements and divides them into two categories: horizontal agreements and vertical agreements. It stipulates that all anti-competitive agreements that have the potential to have a significant adverse effect on competition in India are void, subject to the exceptions set out in section 3(5). Section 4 discusses issues of abuse of dominant position and provides a list of activities that may be considered abuse of dominant position.
Objectives of the Competition Act,2002
Contents
The Act aims to establish the legal framework and mechanisms necessary to ensure that competition policies are followed, to prevent anti-competitive conduct, and to punish those who do so. The Act safeguards free and fair competition, as well as trade freedom.
The Act aims to prohibit monopolies as well as government interference that isn’t necessary. The Competition Act of 2002’s main goal is to provide a foundation for the creation of the Competition Commission.
- To guarantee the freedom of trade for the market’s participating persons and corporations by preventing monopolies and promoting competition.
- to safeguard the consumer’s interests
The Act’s Key Concepts
The Competition Act of 2002 primarily addresses four concepts:
- Anti Competitive Agreements
- Abuse of Dominant Position
- Combinations and their Regulation
Anti-Competitive Agreements
Anti-competitive agreements are agreements between parties involved in a business transaction that have the potential to undermine competition in a particular market or that benefit one person or group at the expense of others. The Competition Act of 2002 prohibits such anti-competitive arrangements. The term ‘agreement,’ as defined in section 2(b) of the Act, does not require that the agreement be in the form of a formal document signed by the parties. It could be in writing or not. Clearly, the definition given is inclusive rather than exhaustive, and it covers a wide range of topics.
The fundamental rationale for using a broad definition of “agreement” under Competition law is that those participating in anti-competitive actions are unable to enter into formal written agreements in order to keep their activities hidden. Cartels, for example, are frequently kept secret. Section 3 of the Act prohibits any arrangement relating to the manufacture, supply, distribution, storage, purchase, or control of commodities or the provision of services that has or is likely to have a significant negative impact on competition in India. 103 Section 3(2) also states that any agreement made in violation of this clause is null and invalid.
- Horizontal Agreement: These are agreements that occur between two or more companies or organisations that compete in the same market in terms of production, supply distribution, and so on. Horizontal anti-competitive agreements, for example, are agreements between manufacturers of a particular commodity not to sell a product below a certain price or not to offer a product to a specific market.
The Competition Act of 2002 restricts the following forms of horizontal agreements:
i)Agreements involving the direct or indirect fixing of purchase or selling prices of a product.
ii) Agreements to limit or control the production, supply, investment, or provision of services for specific products and quantities.
(iii) A market-sharing agreement
iv) Bid Rigging Agreements
Bid rigging is defined in the Explanation to Section 3(3)(d) as an arrangement between parties engaged in the same business that has the effect of eliminating or reducing bid competition or negatively impacting or manipulating the bidding process.
(v) Agreements in the form of Cartels.
Cartels are formed when businesses enter into anti-competitive horizontal agreements. They constitute a significant threat to competition and, as a result, tend to suffocate free commerce. Cartels, in fact, are secret agreements between businesses with the sole purpose of setting prices or sharing markets.
- Vertical agreements: Vertical agreements are those that take place among firms or persons at different stages or levels of production in respect of production, supply, distribution, storage, sale, or price of goods, according to Section 3(4) of the Act. A vertical anti-competitive agreement, for example, is any agreement between a manufacturer and a distributor that has the potential to harm market competition. The Competition Act of 2002 allows for a variety of vertical agreements. These are the following:
I Tie-in Arrangement: Any agreement that compels the purchaser of goods to purchase other items in addition to the required goods as a condition of purchase. Sellers frequently sign into such arrangements in order to enhance their sales and profit margins. A tie-in arrangement becomes illegal when a company takes use of its market power on a particular product by refusing to sell or lease that product to the consumer until he agrees to buy another product that the company wants him to buy.
ii)Exclusive Supply Agreement: Purchasers of products are bound by such agreements not to acquire or deal in goods other than those of the seller or any other person. Typically, such agreements are made by taking advantage of a market’s dominant position. For example, a buyer of a commodity may engage into an agreement with the manufacturer that the product will not be made for any other buyer. However, such agreements should not be mistaken with a legitimate and non-anticompetitive agreement between customers and sellers/ producers on specifications, quality, size, and other factors.
(iii)Exclusive Distribution Agreement: This type of agreement typically contains terms that limit, restrict, or withhold the output or supply of any items.
This section may also include restrictions on the allocation of any region or market for the disposal or sale of goods. If the result substantially decreases or tends to create a monopoly in any line of commerce, such an arrangement may be illegal under competition law.
iv)Refusal to Deal: Under the Act, agreements that restrict or are likely to restrict the persons or classes of persons to whom products are sold or from whom goods are acquired are illegal because they have anti-competitive characteristics.
(v) Resale Price Maintenance: Resale price maintenance refers to any agreement to sell products on the condition that the prices to be charged on resale by the purchaser be the same as those set by the seller, unless it is explicitly indicated that prices lower than those prices may be charged. In other words, any endeavour by an upstream supplier to regulate or maintain the minimum price at which a product is resold by its client is referred to as resale price maintenance. As a result, resellers are less likely to compete aggressively, lowering profits. Restricting a reseller’s authority to determine a price by requiring that a product be resold at a specified margin or limiting the discounts that a reseller may give is banned.
- Permitted Agreements: Certain exceptions to the Competition Act of 2002 exist for the protection of Intellectual Property Rights (IPRs). As stated in section 3(5), the prohibition on anti-competitive agreements does not affect any person’s right to prevent any infringement of, or to impose reasonable conditions as may be necessary to protect, any rights under the following statutes:
(iii)The Trade and Merchandise Marks Act, which was enacted in 1958.
(iv)Geographically Indicated Goods (Registration and Protection) Act of 1999
(v)The Designs Act of 2000
(vi) The Semi-Conductor Integrated Circuits Layout-Design Act of 2000
Exemption from anti-competitive agreements is also available in the case of export. Section 3(5)(ii) states that anti-competitive agreement prohibitions do not apply to a person’s right to export products from India to the extent that the agreement relates to the export of goods or services.
Abuse of Dominant Position
A person or a business is said to be in a dominating position when it is in a position of strength that allows it to function independently of competitive pressures in the relevant market or has a favourable impact on its competitors, consumers, or the relevant market. Several other jurisdictions’ competition laws have defined dominant position in substantially similar terms.
The concept of ‘dominant position’ under the Competition Act of 2002 is based on the above-mentioned definitions of the relevant market. Thus, in order to establish an abuse of dominance, it is required to first establish that the company in question occupied a position of dominance in terms of a certain product market and the geographic market for that product. The Act’s Section 4 addresses the prevention of such abuse. It states that no company or group should take advantage of its dominant position. It also gives examples of what constitutes abuse of a dominant position.
The activities that constitute “abuse of dominant position” are listed below: (i) Imposition of unfair or discriminatory conditions in the purchase or sale of goods or services, or pricing in the purchase or sale (including predatory prices) of goods and services, either directly or indirectly.
(ii) Limiting or restricting the production of goods or services, or placing restrictions on technical or scientific development relating to goods or services, to the detriment of consumers
(iii) Engaging in practises that result in market access being denied in any way
(iv) Using a dominant position in one relevant market to protect or enter another relevant market
Regulations of Combinations
The third topic of Competition Law is the regulation of mergers and acquisitions. The Competition Act primarily governs three forms of combinations:
(i)If the acquisition of shares, voting rights, or assets of another company by a person or a business;
(ii) the acquisition of shares, voting rights, or assets of another entity by a person or an enterprise.
(ii) A individual gaining control of a business.
(iv) Combination or merger of two or more businesses.
Section 5 of the Act defines a combination by establishing specified thresholds below which combinations are not subject to the Competition Act’s scrutiny.
The key reasoning for imposing such restrictions might be that combining tiny businesses or entities will not have a significant negative impact on competition in Indian marketplaces.
The following are the limitations set forth in section 5 of the Act:
(a) In the case of a share purchase, voting rights acquisition, or control acquisition, the person acquiring the shares and the enterprise whose shares, assets, or voting rights are being acquired jointly have:
(I) Assets in India: – Amounts in excess of 1000 crores More than 3000 crores in revenue
(ii) Total assets in India and abroad: – More than 500 million dollars, with at least 500 crores in India.
– Over 1500 million dollars in revenue, including at least 1500 crores in India.
In the event of a group acquisition, the joint assets and the purchasing group should be:
I India’s assets: more than 4000 crores More than 12000 crores in revenue
(ii) Total assets in India and abroad: greater than two billion dollars, with at least 500 crores in India.
– More than 6 billion dollars in revenue, including at least 1500 crores in India.
- In the event of a merger or amalgamation, the remaining enterprise or the newly formed enterprise should have the following:
(i) India’s Assets: More than a thousand crores More than 3000 crores in revenue
(ii) Total assets outside of India: 500 million dollars, with at least 500 crores spent in India, or – More than 1500 million dollars in revenue, including at least 1500 crores in India.
If the company formed as a result of the merger or remained as a result of the merger belongs to a group, the group shall have:
(i)India’s assets: more than 4000 crores More than 12000 crores in revenue
(ii) Total assets, both in India and abroad: – 2 billion US dollars
Over 6 billion dollars in revenue, including at least 1500 crores in India.
In addition, Section 6 of the Act deals with the terms of the Combinations Regulations. It requires a mandatory notice of intended combination to the Commission, along with stipulated fees, within 30 days after the execution of any purchasing document or the board of Directors’ approval of the proposal of amalgamation or merger. The combination must take effect within 210 days of giving notice to the commission or the date on which the commission issues any order relating to such notification, whichever comes first.
In the case of any covenant of a loan agreement or an investment agreement, however, an exception has been made in favour of governmental financial institutions, foreign institutional investors, banks, or venture capital funds.
Conclusion
The Competition Act of 2002 is a measure taken by the government to keep up with changing economic realities, and it is in line with new economic thinking of liberalisation, privatisation, and globalisation. It demonstrates the country’s willingness to transition from a command economy to a free-market economy, but with proper checks and controls in place. The Act not only focuses on the regulatory aspect, but also incorporates the concept of “Competition Advocacy” as a social responsibility of the commission to promote competition, raise awareness, and so on.
The Commission has made its presence felt in the market from time to time by levying stiff penalties against companies that engage in anti-competitive behaviour. The ultimate advantage of such acts has gone to the consumer, who now benefits from healthy market competition and has the opportunity to choose the cheapest and best alternative accessible to him.
However, there are still some issues that the government and the Commission must explore in order to improve the effectiveness of India’s competition law. As a latecomer, India’s competition law has the advantage of incorporating some characteristics of other countries’ competition laws.
However, analysts believe that Indian law has overlooked certain key parts of competition law that may have been included in the present Act. For example, settlement and plea agreements, which are available in other countries, make the regulatory and adjudicatory process faster and more effective, but India has chosen not to use them, which is one of the reasons for the delays in receiving final decisions. Another issue that has recently surfaced is the vagueness of the commission’s authority.
A number of cases before the Competition Appellate Tribunal have been dismissed because the Commission failed to follow natural justice principles or committed other procedural errors.
Another issue that the government must address is the growing backlog of cases due to a staffing shortage. The function of competition laws in the overlap between intellectual property and competition laws is another area where the Commission has to reconsider. To achieve the desired purposes for which the Competition Act was adopted, such problems must be handled seriously by the relevant authorities.
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