Development of Competition Law in India

By-Varun Chhachhar & Parikshet Sirohi-

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India has had a history of competitive markets.  However, the license raj regime, which continued until the early 1990’s (it might have been justified when conceived but had long outlived its utility), severely stunted economic development.

 

COMPETITION LAW IN INDIA

 By-Varun Chhachhar* & Parikshet Sirohi**

Introduction

India has had a history of competitive markets.  However, the license raj regime, which continued until the early 1990’s (it might have been justified when conceived but had long outlived its utility), severely stunted economic development.  The economic crisis that confronted the country led to a slew of economic reforms beginning with the introduction of the New Economic Policy (NEP) 1991 and the New Industrial Policy (NIP) 1991.  The liberalization and competition that followed has been reflected in higher GDP growth, expansion of employment opportunities, and a dramatic rise in the availability and choice of goods and services for the consumer; the benefits of which have been more visible in certain sectors such as airlines, telecom, automobiles, consumer electronics and durables.  Competition law became even more important than before in this new era better known as the Liberalisation-Privatisation-Globalisation (LPG) era.  In this new era, competition has been helping the Indian consumer and industry in ways that could not even have been conceived or visualized before.  However, a market economy has its own drawbacks; and governments have legitimate social concerns, especially for the poor and the deprived.  Market failures do take place, and unscrupulous players can often undermine the benefits through anti-competitive practices.  Keeping in mind the propensity of businesses to exploit the market for individual gain and the immense potential for market failure or abuse has led almost a hundred countries all over the globe to enact modern competition laws and to set up competition authorities to watch the market practices in this area[1].

Origin and Growth of competition law in India    

In India, regulatory measures were provided for the first time in the term by virtue of the enactment of the Monopolies and Restrictive Trade Practices Act (MPTP Act), 1959 which generally drew its inspiration from the mandate enshrined in the Directive Principles of State Policy in the Constitution.  Originally intended to prevent concentration of economic power in a few hands, to control monopolies and to prohibit monopolistic and restrictive trade practices, the MRTP Act had its genesis, specifically in clauses (b) and (c) of Article 39 of the Constitution of India.  One of the basic tenets of our State Policy is, therefore, to ensure that while promoting economic and industrial growth for the welfare of the citizens, progressive reduction in the concentration of wealth and economic power is also brought about, in order to secure social and economic justice. [2] However, not all are of the same view with regards to the enactment of the MRTP Act as M. V. Kamath has observed that the trend towards a decentralized economy has been halted by the appointment of the MRTP Commission. [3]

Monopolies Inquiry Commission

In order to make a comprehensive inquiry in pursuance of the recommendations of the Mahalanobis Committee, the Government of India, on April 16, 1964, appointed the Monopolies Inquiry Commission (MIC) under the chairmanship of Mr. Justice K. C. Das Gupta. [4]

 Doctrine guiding the MRTP Act[5]

Behavioural and reformist doctrines govern the MPTP Act.  In terms of the behavioural doctrine, the conduct of the entities, undertakings and bodies which indulge in such a manner as to be detrimental to public interest, is examined with reference to whether the said practices constitute any monopolistic, restrictive or unfair trade practice.  In terms of the reformist doctrine, the provisions of the Act provide that if the MRTP Commission (established as a regulatory authority under the MRTP Act), upon enquiry comes to a conclusion that an errant undertaking has indulged either in a restrictive or an unfair trade practice, it can direct such undertakings to discontinue or not to repeat the undesirable trade practice in future.

The Act also provides for the acceptance of an assurance from an undertaking that it has taken steps to ensure that the prejudicial effect of such trade practices no more exist.  The veneer of the Act is essentially based on an advisory or reformist approach as a mere ‘deterrence by punishment’ approach has not been regarded by the lawmakers as a desirable way to make an errant undertaking to behave itself.

Ambit and Coverage or MRTP Act

The Indian statute, as most competition laws in the world, encompasses within its ambit, essentially, three types of prohibited trade practices – namely, Restrictive Trade Practices (RTP), Unfair Trade Practices (UTP), and Monopolistic Trade Practices (MRTP).  Very briefly, the core of each such practice is enumerated below:

Dominance

Under the MRTP Act, the basis for determining dominance is whether an undertaking has a share of one-fourth or more in the production, supply, distribution or control of goods or services. However, after the 1991 amendments to the Act, there is no specific provision in the law that connects dominance in the production, supply, distribution or control of goods or services with any offence.

Applicability of the MRTP Act

During the year 1991, a notification was issued by the Government that the MRTP Act shall apply to public sector undertakings whether owned by the government or by Government companies, statutory corporations, undertakings under the management to various controllers appointed under any law.  Thus, after this amendment to the Act, there is no longer any distinction between the public sector undertakings and private sector companies in the matter of monopolistic, restrictive and unfair trade practices.

MRTP Commission

Under the Act, an MRTP Commission has been established, the Chairman of which, is a person who is, or has been, or is qualified to be, a judge of the Supreme Court or any High court.  The Members of the Commission are persons of ability, integrity and standing who have adequate knowledge or experience of, or have shown capacity in dealing with problems relating to economics, law, commerce, accountancy, industry, public affairs or administration.

High Powered Expert (Sachar) Committee

During the course of the implementation of the MRTP Act, certain difficulties were encountered.  It was felt that the objectives of the Act had not achieved to the desired extent.  Several deficiencies and lacunae were noticed in the provisions of the Act and the powers given to this enforcement agency were considered to be inadequate.  Suggestions for amendments in the Act were also received from various quarters, including the Commission itself.  Upon realization of the need for an in-depth review of the working of the MRTP Act and the Companies Act 1956, the Government appointed in June 1977, a high-powered expert committee, under the chairmanship of Justice Rajinder Sachar, to consider and report changes necessary in the two legislations.  The Sachar Committee submitted its report to the Government in August, 1977.

At the same time the Committee also recommended that public sector enterprises should be brought within the purview of the MRTP Act insofar as their monopololistic, restrictive and unfair trade practices were concerned.  The Committee strongly recommended that the powers of the MRTP Commission be enhanced and suggested the setting up of a Directorate General of Trade Practices headed by a Director General.  On the functional side, it recommended that the test of determining the dominance of an undertaking in respect of its market share should be one-fourth, instead of one-third, of the market share in respect of any goods or services, as it then stood.

Major Amendments in the MRTP Act

On the basis of the recommendations of the Sachar Committee and the need for amending certain provisions of the MRTP and in the light of some judicial pronouncements as also the recommendations of the Prakash Tandon Committee, set up by the Government of India in 1980 for suggesting a long-term strategy for exports, it was felt that few amendments of an urgent nature should be brought about in the structure of the MRTP Act.  Though the Act was thereafter amended in the years 1980, 1982, 1984, 1985, 1988 and 1991, some of the major amendments are summed up hereinbelow in order to trace the evolution of the MRTP Act in India.

 The Competition Act, 2002

This Act was introduced as a replacement to the Monopolies and Restrictive Trade Practices Act, 1969.  Section 55 of the Competition Act provides for the repeal of the MRTP Act and for the transfer of connected matters to the Competition Commission set up under the Competition Act 2002.  The repeal is on the ground that the MRTP Act is no longer suited to deal with issues of competition that may be expected to arise with the advent of the new liberal business environment prevalent in the country today.  The antitrust issues that are specifically covered by this Act are as enunciated below:

  1. a) Anti-competitive agreements [6] ;
  2. b) Abuse of a dominant position[7] ;and
  3. c) Any combination, whether by way of an acquisition of an enterprise or merger of enterprises, above the prescribed threshold level of the assets or turnover of the enterprises involved in the combination[8].

Extra Territoriality

The Act has extra-territorial jurisdiction[9] and provides that the Commission shall have the power to inquire into an agreement or abuse of dominant position or combination even if the act in question has taken place in a territory outside of India or by an enterprise that is located outside of India provided that, it has an appreciable adverse effect on competition in the relevant market in lndia.  Thus, the governing factor is the effect in the domestic market – this is also referred to as the “effects doctrine”.  Further, the Commission is allowed under this proviso to enter into Memorandum of Agreements (MoU’s) or arrangements with any agency of any foreign country, with the prior approval of the Central Government [10].  This provision is in support of the extra-territorial jurisdiction of the Commission.  The jurisdiction of the Competition Act extends to all sectors of the economy.  Sectors regulated by sector specific laws such as telecommunications or electricity are not excluded from the purview of this Act.

Exemptions

The Act covers enterprises irrespective of their ownership.  Thus, private enterprises, as well as government enterprises, and also government departments are covered under the purview of the Act.  However, the Act excludes activities of the Government related to its sovereign functions and specifically excludes all activities carried on by the departments of the Central Government dealing with atomic energy, currency, defence, and space.

Wide Coverage of the Competition Act

According to Section 2 (h) of the Competition Act, 2002, an ‘enterprise’ 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 or goods, or the provision of services, of any kind, or in investment, or in the business of acquiring, holding, underwriting or dealing with shares, debentures or other securities of any other body corporate, either directly or through one or more of its units or divisions or subsidiaries, whether such unit or division or subsidiary is located at the same place where the enterprise is located or at a different place or at different places, but does not include any activity of the Government relatable to the sovereign functions of the Government including all activities carried on by the departments of the Central Government dealing with atomic energy, currency, defence and space.

Further Explanation on who is covered and who is not under the Act:

For the purposes of this clause,

(a)   “Activity”, includes profession or occupation;

(b)   “Article”, includes a new article and service includes a new service;

(c)   “Unit or division”, in relation to an enterprise, includes:

  1. i) A plant or factory established for the production, storage, supply, distribution, acquisition or control of any article or goods;
  2. ii) Any branch or office established for the provision of any service; Thus it includes all,

1) Persons

2) Departments of Government

However, it does not include:

1) Sovereign functions of the Government

2) Activities carried on by the Departments of the Central Government dealing with

  1. i) Atomic energy
  2. ii) Currency

iii) Defence

  1. iv) Space

Under Section 2(l) of the Act, “person”, includes.

  1. i) An individual;
  2. ii) A Hindu Undivided Family (HUF);

iii)     A Company;

  1. iv) A Firm;
  2. v) An association of persons or a body of individuals, whether incorporated or not, in India or outside India;
  3. vi) Any corporation established by or under any Central, State or Provincial Act or a Government Company [11]

vii)    Anybody corporate incorporated by or under the laws of a country outside India;

viii)      A co-operative society registered under any law relating to co-operative societies;

  1. ix) A local authority;
  2. x) Every artificial juridical person, not falling within any of the preceding

 

Therefore, a reading of Section 2(h) along with Section 2(l) of the Act implies that every person, organization, institution, society, scientific society (e.g. Ministry of Information Technology, Department of Science and Technology and Centre for Scientific Research) and the like which can legally be conceived shall fall within the ambit of definition of “enterprise” except of course, the exceptions listed out in Section 2(h).

Sections 3, 4, 5 and 6 of the Act are the substantive sections defining and dealing with anti competitive agreements, abuse of dominant position and regulation of combinations. All these sections talk about “enterprise” (sections 3 and 4) and “persons or enterprises” (Sections 5 and 6).

Sections 60 and 61 of the Act give further teeth to the Commission.  Under Section 60 the Act, it is provided that the provisions of this Act shall have effect notwithstanding anything inconsistent therewith, contained in any other law for the time being in force.  Section 61 says that no civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the Commission is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act.

Non-obstante clause[12] and the principle laid down by the Supreme Court in this regard are given hereinafter.  The enacting part of the statute must, where it is clear, be taken to control the non obstante clause where both cannot be read harmoniously; for, even apart from such clause a later law abrogates earlier laws clearly inconsistent with it[13].

 

Competition Commission of India

The Authority entrusted to achieve the objects of the Act is the Competition Commission of India. Section 7 provides for the establishment of the Commission, while Section 8 states what the composition of the Commission shall be:

Sec 8 (1) 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:

  • Provided that the Central Government shall appoint the Chairperson and a Member during the first year of the establishment of the Commission.
  • 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.
  • The Chairperson and other Members shall be whole—time Members. Section 9 provides that the chairperson and other members shall be selected in the manner as may be prescribed.

 Powers of the Commission

The Commission has the power to regulate its own procedure and it is not bound by the Code of Civil Procedure, 1908, which contains the general procedure to be followed in the case of civil courts.  However, the Commission must be guided by the principles of natural justice[14], that is to say that a person against whom action is sought to be taken or whose right or interest is being affected has a right to be heard and should be given a reasonable opportunity to defend himself, and the authority deciding the matter should be free from bias.  Further, the procedure shall also be subject to the Rules made and amended by the Central Government from time to time, by virtue of the powers conferred upon it, under the Act.  The Director General may also undertake search of premises (dawn raids) with the permission of a magistrate having competent jurisdiction. [15]

Who can approach the Commission for redressal:

According to section 19(1), the commission can commence an inquiry into any alleged contravention of section 3(1) or section 4(1) of the Act either on its own motion or upon receipt of a complaint from any person, consumer, or their association, trade association, etc.  The relevant terms in this section have been defined in the Act.

 

Confidentiality of information

The Act provides for the protection of confidential information.  Section 57 says that no information relating to any enterprise shall be disclosed without the prior written permission of the enterprise, except in compliance with or for the purposes of this Act or any other law for the time being in force.

Other salutary features of the Competition Act

Every order passed by the Commission is appealable. Under the MRTP Act, orders arising out of Compensation Applications could not be agitated before the Appellate Authority, but aggrieved parties were per force compelled to find alternative remedies through Writ Petition before the concerned High Courts.  The Writ Jurisdiction of High Courts is still available since the Competition Commission continues to be an instrumentality of a State under Article 12 of the Constitution.  Further, the new legislation has not been enacted under Article 323 B of the Constitution but seeking relief against orders arising out of Compensation Applications in Writs is cumbersome and adds to litigation cost and time.  This difficulty has been fully taken care of and removed.  The Review of Orders and Rectification of Orders are two separate issues. Under the MRTP Act, the power to rectify orders was available but, more often than not, this power was also exercised for review of the orders passed by the Commission[16]. This anomaly has been removed under the Competition Act and separate provisions for review and rectification have been provided under sections 37 and 38 respectively of the Act.  Anti-competitive practices committed overseas but having effect in India, have been covered under section 32 of the Act.  In order to enable the Commission to implement this section, an enabling provision (section 18) has been provided whereby the Commission, with the prior approval of the Central Government, may enter into arrangements and MoU’s with foreign agencies and enforce the law by way of ‘effect theory’ which is accepted worldwide.  Under section 14 of the MRTP Act, a similar provision was available but due to the non-availability of corresponding enabling provision to enter into arrangement / MoU with foreign agencies, section 14 of the MRTP Act could not fulfil the purpose for which it was enacted.  Jurisdiction of civil courts (including sectoral regulators when functioning as civil courts) to adjudicate issues relating to competition matters have been expressly excluded under section 61 of the Act.  Besides, passing “cease and desist” orders, the Commission is also empowered to impose fine.  It can further impose penalties for non compliance of its orders.  The MRTP Commission has the power to punish for Contempt for noncompliance of its orders[17].  This power has not been included in the Competition Act, but the power to impose penalties for non-compliance of orders appears to be a greater deterrent than the power to issue notice of Contempt.  Important terminology like Predatory Price, Cartel, Relevant market, Relevant product market, etc have been specifically defined in the new Act whereas these important definitions were not available in the earlier (MRTP) Act.  IPR protections have been exempted from being considered by the Competition Commission, thus bringing large corporations under the purview of the new (Competition) Corporation.

Summary of discussion

Thus, a brief overview of the new Act has been given and a comparison has been drawn of some of its provisions vis-a-vis the erstwhile MRTP Act.  Competition Policy is a much broader issue and an attempt has been made in the ensuing paragraphs of this Paper to highlight some of the salient points of this Policy.

Competition Advocacy 

The mandate given to the Commission under the Act includes the powers to promote competition advocacy.  Section 49(3) states that the Commission shall take suitable measures, as may be prescribed, for the promotion of competition advocacy, creating awareness and imparting training about competition issues, and activities that should strengthen the competition culture in the market.  

Government policy framework

The new Competition Act was enacted in December 2002 and received the assent of the President of India in January 2003.  Soon after this enactment, the Act itself became the subject matter of litigation before the Supreme Court which went on for over twenty months till the Hon’ble Court decided the case; thereafter the process of amendment has been going on.  The enforcement provisions of the Competition Act cannot come into play till the Act is amended and the amendments would be the first step in operationalizing the Competition Commission.  Other measures on a parallel basis are necessary to get the Commission going, such as sanction and appointment of professionals and other staff, training, particularly the use of training facilities available both in India and overseas.

Indian Competition Law is based on the best practices available in competition law across the world and it broadly consists of three limbs: Anti-competitive Agreements, Abuse of Dominance, and Mergers.  The first two limbs are ex-post activities of the Competition Commission, which is the ultimate friend of the market economy.  It is and should be a non- interfering body which steps in only when the market forces cannot find a correction to a particular situation. It would operate ex post and not ex ante.

Conclusion

While the Indian Competition Act envisages a role for advocacy, it is a weak role.  The Commission will start its enforcement activity after the aforementioned amendments come through but it can still offer opinion on several policy issues suo-moto.  However, there are instances where the Competition Commission has interacted with the Government and regulators and given its views on laws and policies that are being formulated.  For example, when the postal department came with a new Bill with the object that all mail in India, weighing upto 300 grams would be a sole monopoly of the Indian Postal department, to be transported only by it.  Another such Bill sought to set up a postal regulator (on the lines of TRAI for the telecom sector), but sought to include only private courier companies in the purview of the proposed regulator, while keeping the Indian postal department outside of the purview of the proposed regulator.  The Commission gave its views on both these issues that there was no justification for either of these moves.  The Bill will most likely be modified, and we have yet to see the outcome.  The Commission gave its views to the Planning Commission on the formulation of a Competition Policy, including a report on the competition approaches in the Eleventh Plan document.

The Commission has also commissioned a large number of studies in different sectors of the economy, on issues relating to competition, and the study reports have now started coming in.  These studies are an effort to have a better insight into the market forces in different sectors, so that the Commission is in synergy with the market when looking at cases in a particular sector. For instance, the Commission, through the National Council for Applied Economic Research (NCAER), carried out a study of the passenger transport industry in the country with seven sample states.  The report recommended that the passenger transport sector which is presently controlled and regulated by the State Transport Authorities and Regional Transport Authorities, be put under a regulator like the Electricity Regulator or the Telecom Regulator and routes be given out through competitive bidding.  Those routes which are not viable can be financed through cross subsidy.  It was also recommended that a transparent, competition based, market based transport policy be followed.  Another area where studies have been commissioned is in the areas of capacity building and institution building.  The Commission is also preparing the ground work for the time when it will commence inquiry work and is putting in place, processes in order to ensure setting of strict time limits for the disposing of cases and passing the final order within twenty-one (21) days of the final hearing; not more than three adjournments; internal guide lines; and so on.  The Commission is also providing for a Consent Order in order to minimize competition litigation.  Strict standards of transparency are being recommended with every order being posted on the website of NIC or that of the Commission itself, on the lines of what is currently being done by NIC for the Supreme Court and most of the High Courts across the country.  This will also serve the purpose of Competition Advocacy as envisaged under Section 49 of the Act.  Since the MRTP Commission has been repealed from September 2009 onwards, the Competition Commission of India shall have a big role to play in Competition Advocacy.

 

NOTE- The article has Originally been published in ‘Nyaya Deep’, the Official Journal of the National Legal Service Authority, Vol XI, Issue 2, April 2010. The permission of the authors has been obtained.

*Ph.d Scholar, Faculty of Law, Jamia Millia Islamia, New Delhi & Advocate, Delhi High Court.                                                                                              **Central Government Counsel, Supreme Court of India & Delhi High Court.                                                              [1] Dhall, Vinod. , ‘Competition Law and Policy’, available at www.cci.gov.in, last accessed on 28. 02. 2009.

[2] Verma, D.P.S., ‘MRTP Law-principle, provisions and cases’, Published by Manas Publication, New Delhi,1992.

[3]  Kamath, M.V. , ‘The Privy Purse Case’ Pg. 146, 2007, Hay House India.

[4]  Karan Singh, Ravi, ‘Restrictive Trade Practice and Public Interest’ by Mittal  publication,(Edn.)1989.

[5]  Chakravathi, S. , ‘ Extent Competition Law and Effort to Evolve New to Meet Emergent Needs’,  (2001) 42 CLA(mag.) 39.

[6]       Section 3 of the competition act 2002.

[7]       Section 4 of the competition act 2002.

[8]       Section 5 of the competition act 2002.

[9]       Section 32 of the competition act 2002.

[10]     Section 18 of the competition act 2002.

[11]  Section 617 of the Companies Act 1956.

[12]  Section 60 of the competition act

[13]  Aswini Kumar Ghose v. Arabinda Bose,  AIR 1952 SC 369 at p. 377.

[14] Section 30 of the competition act 2002.

[15] Section 42 of the Competition Commission Act 2002.

[16] Section 13(2) of the competition commission of India

[17] Section 13B of the competition commission of India

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