All You Need to Know About the Competition Act, 2002

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INTRODUCTION

Competition is the act of the sellers individually seeking to acquire the patronage of buyers in order to achieve profits or market share. The Monopolies and Restrictive Trade Practices Act, 1969 was replaced by The Competition Act, 2002 which was enacted by the Parliament of India in 2002. Its purpose is to govern Indian competition law. It has been amended twice after its enactment i.e. The Competition (Amendment) Act, 2009 and The Competition (Amendment) Act, 2007. The two major characteristics of the Act is the structure it gives for the formation of the Competition Commission, and the instruments it provides to avoid anti-competitive practices and to develop positive competition within the Indian market.

  • Objectives of the Act

The Act seeks to bring the legal structure and instruments to assure competition policies are met and to avoid anti-competition practices and provide for the penalisation of such acts. The Act safeguards the free and fair competition which protects the freedom of trade, which in turn protects the interest of the consumer. The Act seeks to prevent monopolies and also to prevent unnecessary intervention by the government. The major objectives of the Competition Act, 2002 are as follows:

  • 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

Prohibition of certain agreements under The Competition Act 2002

No enterprise or association under this Act shall enter any sort of the agreement for the production, deliver or supply, production, distribution, storage, acquisition or control of products or services which might cause any sort of appreciable adverse effect on the competition in Indian markets. Any such an agreement which is entered in contravention of provisions as contained in subsection (1) shall remain void.

Any agreement which shall directly or indirectly determine the purchase or sale prices of goods and/or services or limits or controls the production, supply, markets, technical development, investment or provisions of such services or good, or shares the market or source of production by way of allocation of the geographical area of market or type of goods or services or a number of customers in the market or directly and/or indirectly results in bid-rigging or collusive bidding, shall be presumed to have an adverse effect on the competition and shall stand void under The Competition Act 2002.

Here the term bid-rigging means any sort of agreement between the business enterprises or any business entity who are engaged in identical production or trading of goods or provisions of service and which might affect the elimination or reducing the competition for bids or adversely affect the manipulation of the process of bidding. 

Any such agreement among the person or business body at any level of market in respect to production, supply, distribution, storage, sale or trade of goods or services including tie-in arrangements, exclusive transfer agreements, exclusive distribution agreements, denial to deal and resale price maintenance shall be taken into the account of subsection (1) of The Competition Act 2002 and is taken into account to have an appreciable adverse effect on the competition in markets in India and shall be considered void under The Competition Act 2002.

Abuse of dominant position

The abuse of a dominant position is prohibited by Section 4 of the Competition Act. Under this provision of The Competition Act 2002, no enterprise must be permitted to abuse its dominant position. By this, we mean that if an enterprise is directly or indirectly imposed of any unfair or discriminatory means to condition in purchase or sale of any sort of goods or services or in prices in purchase or sale of any sort of goods and/or services or by any means limits or restricts the production of goods or services and the market thereof and/or limits or restricts any technical or scientific developments relating to the goods or services to the prejudice towards the consumers. Or indulges in any means or practices which can end in denial of market access or makes any conclusion of contracts which are subject to acceptance to other parties of any supplementary obligations in their nature or per its commercial usage or in connection to the topic of such contracts. Or used the dominant position in any other relevant market to enter it, then it will have considered the abuse of its dominant position to alter the competition.

Remedies

Remedies contrary to AAEC agreements and abuse of dominant position were provided by the Competition Commission of India. Upon a review and enquiry into the alleged practices the Competition Commission may pass the subsequent orders:

  • Direct the discontinuance of such practices
  • Impose a penalty that’s lower than 10% or the turnover of the preceding three financial years; within 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 decrease 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 organized under the Competition Act, 2002. It is a legal body whose power is 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 goals, duties and powers are specified in the Competition Act, 2002. Its main duty and object are 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

Under the Competition Act 2002, the regulation of combinations refers to the procurement of one or more enterprises within the market by one or more person with the help of a merger or amalgamation of enterprises where —

  • The parties to the acquisition, whose control, shares, voting rights or assets have been acquired or being acquired jointly, be it either in India or outside India.
  • The Group to which the enterprise whose control, shares, assets or voting rights are acquired or being acquired after the procurement is either in India (with assets useful more than four thousand crores or turnover of more than twelve thousand crores), or outside India (with assets of value more than two billion US Dollars or of turnover more than six billion US dollars).
  • Acquisition of control by a person over an enterprise when such person already has direct or indirect control of another such enterprise which is engaged in the production, distribution, trading of similar or identical or substitutable goods or services, the enterprise over which the control has been acquired along with the enterprise which is already in control of the acquirer, be it in India (of assets more than one thousand crores or turnover more than three thousand crores), or outside India (of value more than five hundred million US dollars or turnover more than 15 million US dollars).

No person shall enter such a combination which may cause or is likely to cause an appreciable adverse effect on the competition within the relevant market in India and all such combination can be deemed void under the provisions of the Competition Act 2002.

Conclusion 

Thus, The Competition Act 2002 is a comprehensive and meticulously carved out to meet the requirements of the new era of the market economy, which has dawned upon the horizon of the Indian economic system. It is in simultaneity with other sets of policies like liberalized trade policy, relaxed FDI norms, FEMA, deregulation etc, that would ensure uniformity in overall competition policy. It’s just a matter of time when the Act is made effective and CCI becomes functional, which would, in turn, help realize our aspiration to catch up with the global economy. However, the Act is a true reflection of changing the economic ambience of our country and is well equipped to encourage fair competition and take care of encroaching market practices, facilitate domestic players vis-à-vis outsiders, safeguard the interests of consumers and thus, ensure vibrancy and stability in the Indian market.

This article has been written by Parul Sharma, pursuing BBA LLB from Centre for legal studies Gitarattan International Business School GGSIPU.

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