The market principles stipulating that enterprises must be prevented from abusing their dominance in the marketplace is an old one, recognized from the times of the rise of the great capitalist economies of the West. Along with this realization came laws prohibiting unfair business practices in order to encourage competition in the interests of the general public as well as smaller businesses. John D. Rockefeller’s Standard Oil Co. in the early 1900s and Bill Gates’ Microsoft Corp. towards the turn of the millennium are among the famous players whose activities were questioned and penalized under various laws relating to competition.
India has had its own version of such a law through the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act). But an updated new legislation formulated for the liberalized and booming Indian economy, the Indian Competition Act (amended to Competition Act), was passed in 2002.
Illustration: Jayachandran / Mint
While the Act was passed in 2002, it has been put into force in stages. In a significant development, the government on 15 May issued notifications giving effect from 20 May to, among others, the provisions dealing with anti-competitive agreements (section 3) and abuse of dominance (section 4) in the Act. These sections regulate all types of agreements which, among other things, deal with production, supply, distribution, storage and control of goods or services and regulate the abuse of dominance by an enterprise or group.
Interestingly, as the Competition Act is being notified in phases, sections 5 and 6 (dealing with combination, mergers and acquisitions) and section 66 (dealing with the repeal of the MRTP Act), are yet to be notified and brought into force. Due to section 66 not having been notified, the MRTP Act is still in existence even as the Competition Act is being notified and is coming into force. With the latest developments, the Competition Commission of India (CCI) will have the power to initiate cases against enterprises (i) where the “enterprise” is involved in anti-competitive agreements; and (ii) where the “enterprise” is indulging in abusing its/their dominance in the relevant market.
“Enterprise” is defined to include persons/governments engaged in any occupation relating to production, storage, supply, distribution, acquisition or control of goods or provisions of services of any kind or in investment or in a business of acquiring, holding, underwriting or dealing with shares, debentures, or other securities.
However, sovereign functions of the government, for example atomic energy, currency, defence, etc., are excluded from the purview of the Competition Act.
To determine the anti-competitiveness of agreements, what is examined is whether an agreement causes or is likely to cause an appreciable adverse affect (AAE) on competition in India.
Section 3 of the Competition Act impliedly classifies agreements as horizontal agreements and vertical agreements. Horizontal agreements are between persons engaged in a similar or identical kind of trade in goods or provision of services. Vertical agreements are mainly between persons or enterprises at different stages or levels of the production chain in different markets.
CCI will presume that horizontal agreements that fix prices, limit or control production, allocate markets or bid rigging have an AAE on competition. This presumption can, however, be rebutted by parties/enterprises to such agreements.
However, vertical agreements, which include conditional purchase/sale, exclusive supply arrangements, refusal to deal, etc., will be evaluated on the basis of “rule of reason” approach. This means that CCI and/or the complainant (as the case may be) will have the onus to prove that such an agreement will have an AAE on competition.
To determine whether an agreement has AAE on competition or not, CCI will consider all or any of the factors listed under section 19(3) of the Competition Act, such as creation of barriers, or driving existing competitors out of the market.
Agreements imposing “reasonable conditions” for protecting intellectual property rights and export agreements are outside the purview of section 3 of the Competition Act. Further, certain joint venture agreements that aim to increase efficiency in aspects such as production, storage, supply, etc., are exempted from being construed as anti-competitive horizontal agreements.
Other provisions that have been notified deal with the abuse of dominant position by an enterprise or a group (entity) (section 4). Importantly, the Competition Act does not restrict or prohibit an entity from being dominant in a relevant market but what it restricts is the “abuse” of dominance by an entity. In this regard, the Act specifies a list of practices that constitute abuse of dominant position, such as imposition of unfair or discriminatory conditions in purchase or sale or in price, or indulging in predatory pricing tactics.
CCI, while considering whether an entity is abusing its dominant position, will first determine the relevant market in which the entity is operating and then determine whether such an entity is enjoying a dominant position in the relevant market or not and abusing its dominance.
The Act lists out several factors for CCI to consider and to determine “relevant market” and “dominant position”. Unlike the MRTP Act, there are no minimum thresholds for determining dominance in the Competition Act.
Apart from this, certain regulations have also been notified and put into effect which, among other things, aim to define the procedure and manner in which CCI will appoint experts to undertake investigations, the format in which complaints/information and references from persons/government are to be filed with CCI and the detailed procedure on hearing such matters.
The business community and other stakeholders in the economy are waiting to see the Competition Act in action now that some of its more significant provisions have come into force.
Send your comments to email@example.com This column is contributed by Aparna Mehra of AZB & Partners, Advocates & Solicitors.