Competition Law | Law Optional Notes for UPSC PDF Download

Introduction

The Competition Act, 2002, was enacted by the Parliament of India on January 13, 2003, marking the replacement of the Monopolies and Restrictive Trade Practices Act, 1969. This legislation became effective on March 31, 2003, and it underwent two amendments through the Competition (Amendment) Act, 2007, and the Competition (Amendment) Act, 2009. The enactment of the Competition Act, 2002, was influenced by India's commitment to globalization and economic liberalization. Its primary objective is to regulate and curb anti-competitive practices by companies or firms that could harm healthy competition within the Indian market. Additionally, the Act aims to promote and preserve market competition, protect consumer interests, and uphold market freedom in the nation.
The Competition Act, 2002, serves a dual purpose in India: it addresses anti-competitive behaviors and aligns with the agreements of the World Trade Organisation (WTO). The Act also establishes the Competition Commission of India (CCI) as the regulatory authority responsible for preventing and regulating anti-competitive activities within the country. Furthermore, it sets up the Competition Appellate Tribunal (COMPAT), a quasi-judicial body designated to hear and make decisions on appeals challenging directives or decisions made by the CCI.

Evolution and Development of the Competition Act

The Monopolistic and Restrictive Trade Practices Act, 1969 (MRTP Act):

The Monopolies and Restrictive Trade Practices Act of 1969, known as the MRTP Act, marked the inception of competition regulation in India. It was enforced on June 1, 1970, with the primary objective of preventing the concentration of economic power in a few hands. This act also aimed to prohibit monopolistic and discriminatory practices that were detrimental to the general public.

Economic Liberalization and the Abolition of the MRTP Act in 1991:

The year 1991 witnessed a significant transformation in India's economic landscape with the introduction of economic liberalization. This pivotal moment opened up Indian markets to global forces, eliminating trade barriers and exposing the country to both domestic and international competition. To facilitate globalization, India introduced various economic reforms, reduced government intervention, and gradually liberalized the industrial and investment sectors. As part of these reforms, significant changes were made to the country's competition policy, including:

• Amendments to the MRTP Act eliminated the pre-entry scrutiny of investments by MRTP industries, the application of MRTP provisions to mergers, acquisitions, and combinations, and the requirement of government approval for expansion and establishment of new enterprises.
• Following the economic liberalization of 1991, there was a growing need to establish a competition law framework that better suited India's domestic economic dynamics and aligned with international standards.

The Emergence of the Competition Act, 2002:

• In 2002, the Indian Parliament passed the Competition Act to regulate the anti-competitive behavior of companies operating in the Indian market. The Act aimed to prevent practices that had an "Appreciable Adverse Effect on Competition" (AAEC). The primary goal of the Competition Act, 2002, was to foster an open, fair, competitive, and innovative business environment that safeguarded consumer interests and promoted sustainable economic growth in the country.
• Under this Act, the MRTP framework was considered outdated and irrelevant in the context of global economic trends. Therefore, the shift in focus was from "curtailing monopolies" to "promoting competition."
• The Competition Act, 2002, underwent an amendment in 2007 with the Competition (Amendment) Act. The amended provisions came into effect on May 20, 2009, addressing issues related to anti-competitive agreements and the abuse of dominant market positions.
• Three years later, in June 2011, certain provisions concerning the regulation of acquisitions came into force. This marked a significant step in the development of India's competition law framework.

Difference between MRTP Act, 1969 and Competition Act, 2002

Importance of the Competition Act, 2002

The Competition Act plays a crucial role in enforcing regulations that promote healthy competition among businesses and corporations.
This, in turn, has several significant benefits:

• Lower Prices: Competition Act ensures that companies compete by offering lower prices. In a competitive market, the pressure to attract customers often leads to price reductions. Lower prices benefit consumers by making products more affordable, ultimately stimulating economic activity.
• Innovation: Firms are compelled to be innovative under the Competition Act. They must constantly improve their product concepts, designs, manufacturing processes, and services to stay competitive. This drive for innovation results in the development of high-quality products and services.
• Improved Quality: To attract more customers and expand their market share, businesses are encouraged by the Competition Act to enhance the quality of their offerings. This improved quality can manifest in various ways, such as products that are more durable, perform better, superior after-sales support, and better customer service.
• Increased Choices: In a competitive market, businesses strive to differentiate their products and services from their competitors. This differentiation results in a wider variety of choices for consumers, allowing them to select products that provide the best value for their money. Consumers benefit from the increased options available to them.

Features of Competition Act, 2002

Key Features of the Competition Act, 2002:

• Prohibition of Anti-Competitive Agreements: The Competition Act prohibits agreements involving two or more companies or individuals that aim to stifle market competition and are not in the public interest in India.
• Prevention of Abuse of Dominant Position: The Act takes measures to prevent companies from exploiting their dominant market position, and penalties are imposed on those found guilty of such exploitation.
• Anti-Cartel Provisions: The Act treats agreements between businesses or individuals that harm competition as civil offenses, particularly targeting anti-competitive cartels.
• Scrutiny of Mergers and Acquisitions: The Competition Commission of India (CCI) will grant approval for mergers and acquisitions only if they are deemed not to undermine market competition.
• Pre-Informative Nature: Companies or individuals are required to notify the CCI of any interactions or agreements that may potentially harm market competition before engaging in such actions to ensure transparency and prevent misunderstandings.

Key concepts of Competition Act, 2002

The Competition Act, 2002 primarily covers four aspects.

• Anti-competitive agreements
• Abuse of the dominant position
• Combinations and their regulation
• The Competition Commission of India

Anti-Competitive Agreements

• Anti-competitive agreements are agreements made in the course of business transactions among companies that have the potential to hinder competition in a specific market or benefit a specific group while harming others. The Competition Act, 2002, prohibits such anti-competitive agreements.
• In the context of the Competition Act, 2002, the term 'agreement,' as outlined in Section 2(b), does not require a formal written contract; it can be in written or verbal form. The definition is intentionally broad and not exhaustive, encompassing various scenarios. The rationale behind this broad definition is to prevent individuals engaging in anti-competitive conduct from formalizing their agreements in written contracts to conceal their actions.
• Section 3 of the Competition Act, 2002, deems it illegal to enter into any agreement related to the production, sale, transportation, warehousing, procurement, or distribution of goods and services that has or is likely to have an adverse impact on the Indian market. Section 3(2) specifies that agreements in violation of this provision are void.

The Competition Act regulates two main types of agreements:

• Horizontal Agreements
• Vertical Agreements

1. Horizontal Agreements

Section 3(3) of the Competition Act addresses horizontal agreements, which are agreements between two or more businesses operating at the same level of production and distribution. While the Act assumes that certain forms of horizontal agreements may have an appreciable adverse effect on competition in India, this does not mean that all horizontal agreements are inherently anti-competitive. Companies entering into such agreements must demonstrate that their agreement will not significantly harm competition.

Examples of prohibited horizontal agreements under the Competition Act, 2002 include:

• Agreements fixing the buying or selling prices of goods.
• Agreements that restrict or control the production, sale, distribution, or provision of goods and services.
• Agreements related to market division.
• Bid rigging agreements, where two similar businesses conspire to eliminate or reduce competition in bidding processes.
• Cartel agreements, which are secret pacts between companies designed to fix prices or divide markets, posing a substantial threat to competition and free trade.

Vertical Agreements

Section 3(4) of the Competition Act addresses vertical agreements, which are agreements between businesses or individuals at different levels or tiers of the supply chain. Vertical agreements are generally permissible, except when they are shown to cause or are likely to cause a significant adverse effect on competition in Indian markets. The Competition Act provides a comprehensive list of vertical agreements that may be prohibited based on their impact on competition within India.
For instance, an agreement between a manufacturer and a supplier that could impact market competition may be considered a vertical agreement.

Some of the permitted vertical agreements under the Competition Act, 2002 include:

• Tie-in agreements.
• Exclusive supply agreements.
• Exclusive distribution agreements.
• Refusal to deal.
• Resale price maintenance agreements.

Abuse of Dominant Position

An individual or a firm is considered to be in a dominant position when they have a strong market presence that enables them to act without being significantly influenced by competitive pressures in their respective market sector. This dominant position also grants them significant influence over their competitors, customers, or the overall market dynamics. In essence, being in a dominant position means having the power to operate freely without being unduly constrained by market forces.
In order to establish an abuse of dominant position, a company must first hold a dominant position within a specific product and the corresponding geographic market for that product. Section 4 of the Competition Act, 2002, addresses the prohibition of such abuse and essentially states that no firm or organization should exploit its dominant position for its own gain. It further outlines activities that can be considered abusive when in a dominant position.
These activities include:

• Imposing unfair or discriminatory terms on the buying or selling of goods and services or applying predatory pricing (aggressive pricing) practices, whether explicitly or implicitly, to the detriment of consumers.
• Restricting or controlling the production of goods or services or impeding scientific or technological development related to such goods or services, to the detriment of consumers.
• Engaging in activities that limit market access in any way.
• Leveraging a dominant position in one market to protect or enter another specific market.

Abuse of dominant position cases:

• M/s Saint Gobain Glass India Ltd. v. M/s Gujarat Gas Company Limited:
  In this case, the Competition Commission of India (CCI) assessed the criteria for defining the relevant geographic market and product market when determining the 'relevant market.' The CCI considered factors such as the cost of goods or services, the absence of in-house manufacturing, physical attributes or end-use of goods, consumer preferences, the presence of specialized producers, and the classification of manufactured products when determining the 'relevant product market.'
• M/s Fast Track Call Cab Private Limited v. ANI Technologies:
  In this case, it was found that Ola had been offering significant discounts, rewards, and loyalty programs. The Commission noted that Ola's strategy of providing substantial discounts to customers and incentivizing its drivers despite incurring losses appeared to be a deliberate tactic to exclude other competitors from the market. This case highlights a shift in CCI's approach toward the protection of traditional taxi service providers.

Combinations and their regulation

A combination, as per Section 5 of the Competition Act, 2002, refers to the direct or indirect acquisition of shares, voting rights, control over assets, or management of one or more enterprises by one or more individuals or entities. It encompasses mergers and amalgamations of companies. In the context of competition law, a combination is the consolidation of two or more businesses or the acquisition of an entire business sector (e.g., a company or firm) by another commercial entity. In India, mergers can fall into two categories:

• Merger by Absorption: This involves the amalgamation of two or more businesses into a single "surviving enterprise," with all but one of the firms losing their separate identities.
• Merger by Consolidation: In this type of merger, two or more businesses merge to create an entirely "new entity." All the existing firms are formally dissolved, and a fresh company is established.

The Competition Act includes specific regulations governing combinations to ensure that such mergers do not negatively impact competition in the market. These regulations are outlined as follows:

• Prohibition of Anti-competitive Combinations: No entity is allowed to engage in a merger that is likely to result in a significant adverse effect on competition.
• Declaration of Combinations as Void: Section 6(1) prohibits the formation of combinations that are deemed to have a significant adverse effect on competition in the relevant market within India, and it further stipulates that certain combinations should be considered null and void.
• Mandatory CCI Approval: Before proceeding with any merger, an individual or company must obtain approval from the Competition Commission of India (CCI).

The following steps must be followed before the CCI grants approval or disapproval for the proposed merger:

• Notify the Commission of the merger.
• The CCI will initiate an inquiry into the merger in accordance with Section 29 of the Competition Act, 2002.
• After conducting an investigation, if the Commission determines that the merger does not have or is unlikely to have a significantly negative impact on competition, the combination is permitted.

Competition Commission of India

The Competition Act provides for the formation of a CCI. It acts as the regulator of competition in the Indian market. The commission was founded in 2003, but it did not become fully operational until 2009. The central government appoints a chairman and six members to the CCI. It is the commission’s responsibility to eradicate anti-competitive activities, encourage and maintain competition, safeguard consumer rights, and guarantee free trade in India’s marketplaces.
It is a quasi-judicial body tasked with the following duties:

• Prevent practices that have a negative effect on competition.
• Encourage and maintain market competition.
• Safeguard the interests of all consumers.
• Safeguard commercial liberty.
• Investigate problems related to or ancillary to trade.

Application and Enforcement of Competition Law in India

• The enforcement and application of the Competition Act in India are overseen by the Competition Commission of India (CCI). Currently headed by Chairperson Ashok Kumar Gupta and consisting of six members, the CCI holds complete responsibility for ensuring compliance with the Competition Act.
• The CCI has the authority to initiate investigations into anti-competitive agreements or abuse of dominance independently, based on information or evidence in its possession, or upon receiving information or recommendations from state or legal authorities. Complaints or information regarding anti-competitive agreements and the abuse of dominant positions can be filed by anyone, including consumers and other organizations.
• In the case of mergers and acquisitions, the CCI can initiate investigations on its own or based on information provided by the merging entities. The CCI, along with its investigative team, possesses extensive powers for probing anti-competitive practices. This includes the authority to summon and examine individuals under oath, obtain evidence through affidavits, and exercise similar powers.
• If the CCI determines that there is a prima facie case, it can instruct the Director General to carry out an investigation and provide findings. The Director General also has the ability to conduct investigative raids. The CCI may rely on the Director General's recommendations during its investigation and, after affording the accused parties a fair opportunity to present their case, can issue appropriate remedies, including cease and desist orders and the imposition of fines.
• The Competition Act includes provisions for appealing some of the CCI's decisions to the Competition Appellate Tribunal. Subsequently, if necessary, a further appeal can be made to the Supreme Court of India.

Development of competition law in 2022

The central government has proposed the Competition (Amendment) Bill, 2022, which proposes to alter the system of governance of the CCI.

About the bill in brief

• The bill intends to amend the fundamental provisions to accommodate the demands of the modern market.
• It also intends to check anti-competitive practices in the online business, a field that has faced significant legal and regulatory concerns.
• It also intends to strengthen the regulatory framework by boosting the CCI’s responsibility, adaptability, and implementation capacity.

Amendments proposed by the bill

The following are some of the main amendments proposed by the bill:

• A board of directors composed of part-time experts to oversee CCI operations.
• CCI must establish punishment criteria and provide explanations for any discrepancies.
• The merger evaluation time has been reduced from 210 to 150 days.
• The establishment of a green channel for merger proposals.
• CCI can bring appeals to the National Company Law Appellate Tribunal (NCLAT) conditional on a pre-deposit of not more than 25 percent of the CCI’s punishment.
• CCI would be capable of engaging in structured conversations with parties and reach an amicable solution without the need to go through long-established processes, bringing it up to speed with the Securities and Exchange Board of India (SEBI).

Relevance of competition law in the digital era

The usage of digital platforms has increased during the past few years. Under the Competition Act, 2002, CCI has implemented aggressive regulating procedures and taken proactive action against digital platforms engaged in anti-competitive activities. CCI examines network effects, internet privacy, data manipulation, data collection, incorporation, and exchange to enhance competition regulation in digital markets. CCI has revised the particular market by confining itself primarily to online market segments, rather than its previous practice of integrating online and offline marketplaces, thereby bringing additional technology platforms under investigation. While competition laws successfully regulate digital markets, there is an opportunity for competitive markets to be strengthened through proper modifications to keep up with the intricacies of evolving technologies. The future of antitrust regulation of digital marketplaces looks to be bright.

Landmark cases on competition law

Google Inc. & Ors v. Competition Commission of India

The judgement of Google Inc. & Ors v. Competition Commission of India (2015) is as follows:

Fact
The CCI received a complaint alleging that Google Inc. misused its dominating position in the online advertising market by marketing its vertical online services such as YouTube, Google News, Google Maps, and so on. In other words, regardless of their popularity or relevancy, such services display prominently on the Google search engine result page.

Issues
The main question was whether an administrative authority, such as CCI, has inherent rights to examine or recall a decision issued under Section 26(1) without any particular provisions in the Competition Act 2002.

Decision
The Delhi High Court stated that the CCI has the authority to recall or reconsider its decision in accordance with specific conditions and that this should be done selectively but not in all cases in which the investigation has been conducted without a thorough inquiry.

Mohit Manglani v. M/s Flipkart India Pvt. Ltd. & Ors

The judgement of Mohit Manglani v. M/s Flipkart India Pvt. Ltd. & Ors (2015) is as follows:

Facts
Mohit Manglani challenged four prominent firms in the Indian e-commerce sector: Flipkart, Jasper Infotech, Xerion Retail, and Amazon Vector E-commerce (collectively, the ‘Opposite Parties’). The complainant claimed that the opposite parties established exclusive selling and distribution contracts with producers of goods and services to engage in anti-competitive acts in contravention of the Competition Act, 2002. He further claimed that as a result of such exclusive contracts, the opposite parties had obtained a product-specific monopoly, i.e., all of the opposite parties had a hundred percent market domination for commodities that were solely offered on their websites.

Issue
Is it a violation of the Competition Act to engage in exclusive agreements for the sale and acquisition of products via e-commerce?

Decision
The Commission found that the OPs’ digital distribution channels allow consumers to compare prices as well as the benefits and disadvantages of the service. It also offers the choice of delivery at their leisure. As a result, it appears that the exclusive agreement between manufacturers and e-portals does not result in AAEC in the industry.

Shortcomings in the Competition Act

• The basic idea of collective dominance is missing in the Competition Act despite its critical importance in a changing economy like India. The omission of the idea of “collective dominance” in the Indian competition law has often prevented the CCI from taking appropriate remedies whenever necessary. Collective dominance refers to a situation wherein two or more separate companies, united by economic relations, collectively retain a superior position to the other traders. Collective dominance is visible in both vertical and horizontal markets. As a result, parties in a dominating position do not need to be a member of an anti-competitive agreement or cartelization. 
• Furthermore, some say that because of the complexity of competition law analysis, along with the lack of organisational endowment in most emerging economies, adopting a competition law regime may end up doing more harm than benefit, as the risk of making incorrect conclusions is quite high.
• The government has the authority to overrule the CCI. Such limitations have a significant impact on the CCI’s autonomy and effectiveness. In reality, discussion with the CCI by the Central Government under developing competition policy should be made necessary, rather than optional, as provided for in the Act. Furthermore, the Act does not cover infringements on intellectual property rights, which are monopoly rights for a limited period of time.

Relation of competition law and IPR law in India

• At first look, IPR and competition law appear to be like fire and water, operating in opposition to one another. This perspective has shifted through time, and the current opinion is that they share similar ideas.
• The relationship between intellectual property rights and competition law allows an individual to engage in increasing competition while restricting inflexible competition. It allows the holder to make exclusive use of his product for a specified period of time. During such a time, patent holders enjoy monopolistic control and are in a position of dominance. Such dominance will not result in a violation of antitrust law.
• The purpose of competition law is to safeguard and enhance consumer welfare by reducing monopolistic power. On the contrary, IPR is focused on innovation by granting the owners exclusive rights to execute a commercial business, but this does not imply that they may exercise a monopoly position in the market. Even while IPR confers a preventative right on the holder, this right cannot be exclusive enough to confer monopoly status. This is where competition law comes in, and if the IPR owner engages in any anti-competitive behaviour or activity, it becomes subject to competition law.

Conclusion

The Competition Act of India is quite broad and was designed to fulfil the requirements of growth in the economy and worldwide economic trends concerning competition law. As a result, the competition law of 2002 is recognised as a historic law. This legislation does not allow misuse of power. This law primarily promotes competition in the market while also providing flexibility in the distribution of income to firms of all sizes in order to boost the industry’s commercial viability. Though the entire law has still not been implemented, the adoption of the entire Act will undoubtedly increase market competitiveness on a national and worldwide scale.