Competition is the engine of market economy (Autosaved)

8/7/2019 Competition is the engine of market economy (Autosaved)

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GROUP 1

Presented By: Roll No.

Aftab Shaikh 02

Aditya shah 05

Adnan Javed 07

Ashok Verma 13

Girish Kukreja 26

Humed Shaikh 34

Jignesh Nayak 42

To:

Prof. Anant Amdekar

A report on

Need and Relevance of Competition Act in an era of free competition

where world at large is a single platform to carry out trade n commerce.


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Rizvi Institute Of Management Studies And Research Page 2

firms can compete in the market place. Secondly, that where competition does notalready exist, it would be encouraged to exist.

Competition is crucial to achieve high rates of economic growth and employment.Economic theory also suggests that competition is beneficial as it gives a wider choice to

consumers and provides sellers with stronger incentive to minimize costs. Thus theimportance of competition to an economys growth and development, policies to promotecompetition has become an important element of policy formulation. Arguments havebeen put forward to adopt open market policies to increase competition. In the past manycountries adopted economic reforms and reduced government intervention. Many reformswere undertaken in the form of reduction of trade barriers, privatization to increasecompetition. It is however possible that, firms may try to eliminate competition byadopting anti competitive practices such as cartels. Hence there is a need for governmentintervention to protect competition by prohibiting agreements and activities thatundermine it. The government intervention in this case takes the form of a competition

policy.

Effective competition law is a means of inspiring international confidence in aneconomy. Foreign investors would not be willing to commit capital freely in a countrywhere they are not sure of the transparency of the system. The enactment of acompetition law assures to international investors that the market is a true marketeconomy and that participants in the economy, local and foreign, would be equallyguided by rules which condition the behaviour of firms in the marketplace. A goodcompetition policy, along with a sound competition law, should help in fosteringcompetition, economic efficiency, consumer welfare and freedom of trade, which should

equip the Government in meeting the challenges of globalization by increasingcompetition in local and national markets.

The economy of the 21st century is global, but laws to ensure markets are competitive arenational. India has responded to the current world wide trend of globalization by openingup its economy, removing controls and resorting to liberalization. Thus, it was felt thatthe Indian market should be geared to face competition from within the country andoutside. It was also felt that the existing Monopolies and Restrictive Trade Practices Act,1969 has become obsolete in certain respects in the light of international economicdevelopments relating more particularly to competition laws and there is a need to shiftour focus from curbing monopolies to promoting competition. The Governmentappointed the Committee in October 1999 for shifting the approach from curbingmonopolies to promoting competition in line with the international environment. TheCommittee recommended the enactment of Competition Act Hence the Governmentdecided to enact a new law for bringing competition in the Indian market. TheCompetition Act was enacted in 2002 keeping in view the economic development thatresulted in opening up of the Indian economy, removal of controls and consequenteconomic liberalization which required that the Indian economy be enabled to allow


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competition in the market from within the country and outside. It was enacted to preventpractices having adverse effect on competition, to promote and sustain competition inmarkets, to protect the interests of consumers and to ensure freedom of trade carried onby other participants in markets in India.

The Competition Act, 2002

This act was introduced,

y Keeping in view of the economic development of the country,y For the establishment of a commission to prevent practices having adverse effect

on competition,

y To promote and sustain competition in markets,y To protect the interests of consumers andy To ensure freedom of trade carried on by other participants in markets in India.

This act is extends to the whole of India except the state of Jammu and Kashmir.

THE FRAMEWORK OF THE COMPETITION BILL IN INDIA:The preamble of the Competition bill states that it is a law to foster and maintaincompetition in the Indian Market to serve consumer interest while protecting thefreedom of economic action of various market participants and to preventpractices which affect competition, and to establish a commission therefore.This law replaces the age-old MRTP act. The MRTP act had two parts, one, therestriction of monopoly, and the other the curtailing of restrictive trade practices.While the restriction of monopoly implied that no firm could expand beyond acertain limit of investments, and artificial efforts at raising prices or restrictingsupply in a market in such a way so as to get a price above the one that market

would be prepared to pay under normal circumstances. Thus the emphasis ofcompetition bill is more on consumer freedom and freedom of economicactivities rather than control and elimination of monopolies the different chaptersdeal with the length and breadth of this law.

The rubric of the new law, Competition Act, 2002 has essentially four compartments:

y Anti - Competition Agreements


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y Abuse of Dominancey Combinations Regulationy Competition AdvocacyAnti - Competition Agreements

Firms enter into agreements, which may have the potential of restricting competition. Ascan of the competition laws in the world will show that they make a distinction betweenhorizontal and vertical agreements between firms. The former, namely thehorizontal agreements are those among competitors and the latter, namely the verticalagreements are those relating to an actual or potential relationship of purchasing orselling to each other. A particularly pernicious type of horizontal agreements is thecartel. Vertical agreements are pernicious, if they are between firms in a position ofdominance. Most competition laws view vertical agreements generally more lenientlythan horizontal agreements, as horizontal agreements are more likely to reduce

competition than agreements between firms in a purchaser seller relationship.

The key aspect in the implementation of the provision of this section is the identificationof situation involving adverse effect on competition. The Act has identified the followingtypes of agreements that are likely to cause adverse effect on competition:

y Determining sale price or purchase price directly or indirectlyy Limiting or controlling production, supply, markets, technical development or

investment

y Sharing markets or sources of supply by territory, type, size or in any othermannery Bid rigging or collusive biddingy Tie-in arrangementy Exclusive supply agreementy Exclusive distribution agreementy Refusal to dealy Resale price maintenance

HORIZONTAL AGREEMENTS

Agreements between two or more enterprises that are at the same stage of the productionchain and in the same market constitute the horizontal variety. An obvious example thatcomes to mind is an agreement between enterprises dealing in the same product orproducts. But the market for the products is critical to the question, if the agreementtrenches the law. The Act has taken care to define the relevant market. To attract theprovision of law, the products must be substitutes. If parties to the agreement are


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producers or retailers, they will be deemed to be at the same stage of the productionchain.

A specific goal of competition law is and needs to be the prevention of economic agentsfrom distorting the competitive process either through agreements with other companies

or through unilateral actions designed to exclude actual or potential competitors. It needsto control agreements among competing enterprises on prices or other important aspectsof their competitive interaction.

The following four types of agreements between enterprises, involved in the same orsimilar manufacturing or trading of goods or provision of services have an appreciableadverse effect on competition :

y Agreements regarding prices. These include all agreements that directly or indirectlyfix the purchase or sale price.

y Agreements regarding quantities. These include agreements aimed at limiting orcontrolling production, supply, markets, technical development, investment orprovision of services.

y Agreements regarding bids (collusive bidding or bid rigging). These include tenderssubmitted as a result of any joint activity or agreement.

y Agreements regarding market sharing. These include agreements for sharing ofmarkets or sources of production or provision of services by way of allocation ofgeographical area of market or type of goods or services or number of customers inthe market or any other similar way.

Such horizontal agreements, which include membership of cartels, are presumed to leadto unreasonable restrictions of competition and are therefore presumed to have anappreciable adverse effect on competition.

VERTICAL AGREEMENTS

Vertical agreements between firms at different levels of the manufacturing or distributionprocesses which are likely to harm competition. However it is less likely to less harmfulthan horizontal agreements.

EXCEPTIONS

The provisions relating to anti-competition agreements will not restrict the right of anyperson to restrain any infringement of intellectual property rights or to impose such


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reasonable conditions as may be necessary for the purposes of protecting any of his rightswhich have been or may be conferred upon him under the following intellectual propertyright statutes;

y The Copyright Act, 1957;y The Patents Act, 1970;y The Trade and Merchandise Marks Act, 1958 or the Trade Marks Act, 1999;y The Geographical Indications of Goods (Registration and Protection) Act, 1999;y The Designs Act, 2000;y The Semi-conductor Integrated Circuits Layout-Design Act, 2000.

The rationale for this exception is that the bundle of rights that are subsumed inintellectual property rights should not be disturbed in the interests of creativity andintellectual/innovative power of the human mind. No doubt, this bundle of rights essaysan anti-competition character, even bordering on monopoly power. But without

protecting such rights, there will be no incentive for innovation, new technology andenhancement in the quality of products and services. However, it may be noted, that theAct does not permit any unreasonable condition forming a part of protection orexploitation of intellectual property rights. In other words, licensing arrangements likelyto affect adversely the prices, quantities, quality or varieties of goods and services willfall within the contours of competition law as long as they are not in reasonablejuxtaposition with the bundle of rights that go with intellectual property rights.

Yet another exception to the applicability of the provisions relating to anti-competitionagreements is the right of any person to export goods from India, to the extent to which,an agreement relates exclusively to the production, supply, distribution or control ofgoods or provision of services for such export. In a manner of speaking, export cartels areoutside the purview of competition law. In most jurisdictions, export cartels are exemptedfrom the application of competition law. A justification for this exemption is that mostcountries do not desire any shackles on their export effort in the interest of balance oftrade and/or balance of payments. Holistically, however, exemption of export cartels isagainst the concept of free competition.

The Central Government has power under the Act to exempt from the application of theAct, or any provision thereof, a class of enterprises, a practice, an agreement etc.

ABUSEOFDOMINANCE

"Dominant Position has been appropriately defined in the Act in terms of the positionof strength, enjoyed by an enterprise, in the relevant market, in India, which enables it to(i) operate independently of competitive forces prevailing in the relevant market; or (ii)


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affect its competitors or consumers or the relevant market, in its favour. This definitionmay perhaps appear to be somewhat ambiguous and to be capable of differentinterpretations by different judicial authorities. But then, this ambiguity has a justificationhaving regard to the fact that even a firm with a low market share of just 20% with theremaining 80% diffusedly held by a large number of competitors may be in a position to

abuse its dominance, while a firm with say 60% market share with the remaining 40%held by a competitor may not be in a position to abuse its dominance because of the keyrivalry in the market. Specifying a threshold or an arithmetical figure for definingdominance may either allow real offenders to escape (like in the first example above) orresult in unnecessary litigation (like in the second example above). Hence, in a dynamicchanging economic environment, a static arithmetical figure to define dominance may,perhaps, be an aberration. With this suggested broad definition, the Regulatory Authoritywill have the freedom to fix errant undertakings and encourage competitive marketpractices, even if there is a large player around. Abuse of dominance is key for the Act, inso far as dominant enterprises are concerned.

It is important to note that the Act has been designed in such a way that its provisions onthis count only take effect, if dominance is clearly established. As already stated, there isno single objective market share criterion that can be blindly used as a test of dominance.The Act seeks to ensure that only when dominance is clearly established, can abuse ofdominance be alleged. Any ambiguity on this count could endanger large efficient firms.

Thus an abuse of dominant position is said to occur, when an enterprise:

y Directly or indirectly imposes unfair or discriminatory purchase of selling priceson condition, including predatory prices;y Limits production, markets or technical development to the prejudice of

consumers;

y Indulges in action resulting in denial of market access;y Makes the conclusion of contracts subject to acceptance by other parties;y Uses dominance in one market to move into or protect other markets.

PRODUCT MARKET &GEOGRAPHICAL MARKET

Before assessing whether an undertaking is dominant, it is important, as in the case ofhorizontal agreements, to determine what the relevant market is. There are twodimensions to this the product market and the geographical market. On the demandside, the relevant product market includes all such substitutes that the consumer would


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switch to, if the price of the product relevant to the investigation were to increase. Fromthe supply side, this would include all producers who could, with their existing facilities,switch to the production of such substitute goods. The geographical boundaries of therelevant market can be similarly defined. Geographic dimension involves identificationof the geographical area within which competition takes place. Relevant geographic

markets could be local, national, international or occasionally even global, dependingupon the facts in each case. Some factors relevant to geographic dimension areconsumption and shipment patterns, transportation costs, perishability and existence ofbarriers to the shipment of products between adjoining geographic areas. For example, inview of the high transportation costs in cement, the relevant geographical market may bethe region close to the manufacturing facility.

The Act posits the factors that would have to be considered by the adjudicating Authorityin determining the Relevant Product Market and the Relevant Geographic Market,

reproduced herein below:

RELEVANT PRODUCT MARKET

y physical characteristics or end-use of goods;y price of goods or service;y consumer preferences;y exclusion of in-house production;y existence of specialised producers;y classification of industrial products.RELEVANT GEOGRAPHIC MARKET

y regulatory trade barriers;y local specification requirements;y national procurement policies;y adequate distribution facilities;y transport costs;y language;y consumer preferences;y need for secure or regular supplies or rapid after-sales services.The determination of relevant market by the adjudicating Authority has to be done,having due regard to the relevant product market and the relevant geographic market.

PREDATORY PRICING


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One of the most pernicious forms of abuse of dominance is the practice of predatorypricing. Predatory pricing occurs, where a dominant enterprise charges low prices over along enough period of time so as to drive a competitor from the market or deter othersfrom entering the market and then raises prices to recoup its losses. The greater thediversification of the activities of the enterprise in terms of products and markets and the

greater its financial resources, the greater is its ability to engage in predatory behaviour.

Predatory price is defined in the Act to mean the sale of goods or provision of services,at a price which is below the cost, as may be determined by regulations, of production ofthe goods or provision of services, with a view to reduce competition or eliminate thecompetitors (the expression regulations means the regulations made by theCommission under the Act). Predatory pricing, therefore is a situation where a firm withmarket power prices below cost so as to drive competitors out of the market and, in thisway, acquire or maintain a position of dominance. But there is a danger of confusing pro-

competitive pricing with predatory behaviour. In reality, predation is only establishedafter the fact i.e. once the rival has left the market and the predator has acquired amonopoly position in the market. However, any law to prevent is meaningful, only if ittakes effect before the fact i.e. before the competitor has left the market.

Predatory pricing is a kind of Anti-trust violation. The Monopolies and Restrictive TradePractices Commission in India in the Modern Food Industries Ltd. (MRTP Commission,1996) case observed that the essence of predatory pricing is pricing below cost with aview to eliminating a rival. Further, the Commission made it clear that the mere offer ofa price lower than the cost of production cannot automatically lead to an indictment ofpredatory pricing and that evidence of malafide intent to drive competitors out ofbusiness or to eliminate competition is required. The logic underlying the caution of theCommission is that price-cutting may be for genuine reasons, for example in the case ofinventory surplus. Price-cutting has therefore to be coupled with eliminating a competitoror competition to become an offence under competition law (Act).

The Act outlaws predatory pricing as an abuse of dominance.

Distinguishing predatory behaviour from legitimate competition is difficult. Thedistinction between low prices, which result from predatory behaviour and low prices,which result from legitimate competitive behaviour is often very thin and not easilyascertainable.

WHEN DOES ABUSE OFDOMINANCE ATTRACT THE LAW?

To attract the provision of the Act, it needs to be established whether the restraints createa barrier to new entry or force existing competitors out of the market. The key issue is theextent to which these arrangements foreclose the market to manufacturers (inter-brandrivalry) or retailers (intra-brand rivalry) and the extent to which these raise rivals costsand/or dampen existing competition. The costs of such arrangements need to be weighed


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against the benefits. For example, some of these restraints help to overcome the free-riderproblem and allow for the exploitation of scale economies in retailing.

Before proceeding to the next compartment, a listing of factors from the Act constitutingdominance" and constituting "abuse of dominance" has been reproduced herein below.

Dominance is determined by taking into account one or more of the following factors:

y market share of the enterprise;y size and resources of the enterprise;y size and importance of the competitors;y economic power of the enterprise including commercial advantages over competitors;y vertical integration of the enterprise, or sale or service network of such enterprise;y dependence of consumers on the enterprise;y monopoly or dominant position whether acquired as a result of any statute or by

virtue of being a Government company or a public sector undertaking or otherwise;

y entry barriers including barriers such as regulatory barriers, financial risk, high capitalcost of entry, marketing entry barriers, technical entry barriers, economies of scale,high cost of substitutable goods or service for consumers;

y countervailing buying power;y market structure and size of market;y social obligations and social costs;y relative advantage, by way of the contribution to the economic development, by the

enterprise enjoying a dominant position having or likely to have an appreciableadverse effect on competition;

y any other factor which the Commission may consider relevant for the inquiry.Abuse of dominance having an appreciable adverse effect on competition occurs if anenterprise,

a) directly or indirectly, imposes unfair or discriminatory-(i) condition in purchase or sale of goods or service; or(ii) price in purchase or sale (including predatory price) of goods or service,

b) limits or restricts-(i) production of goods or provision of services or market therefor; or(ii)

technical or scientific development relating to goods or services to the

prejudice of consumers; orc) indulges in practice or practices resulting in denial of market access; ord) makes conclusion of contracts subject to acceptance by other parties of supplementary

obligations which, by their nature or according to commercial usage, have noconnection with the subject of such contracts; or

e) uses its dominant position in one relevant market to enter into, or protect, otherrelevant market.


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It may therefore be seen that the Act does not frown upon dominance as such but frownsupon abuse of dominance.

COMBINATIONS REGULATION

Combinations, in terms of the meaning given to them in the Act, include mergers,amalgamations, acquisitions and acquisitions of control, but for the purposes of thediscussion that follows, mergers regulation has been reckoned. As in the case ofagreements, mergers are typically classified into horizontal and vertical mergers. Inaddition, mergers between enterprises operating in different markets are calledconglomerate mergers. Mergers are a legitimate means by which firms can grow and aregenerally as much part of the natural process of industrial evolution and restructuring asnew entry, growth and exit. From the point of view of competition policy, it is horizontal

mergers that are generally the focus of attention. As in the case of horizontal agreements,such mergers have a potential for reducing competition. In rare cases, where an enterprisein a dominant position makes a vertical merger with another firm in an adjacent market tofurther entrench its position of dominance, the merger may provide cause for concern.Conglomerate mergers should generally be beyond the purview of any law on mergers.

A merger leads to a bad outcome only if it creates a dominant enterprise thatsubsequently abuses its dominance. To some extent, the issue is analogous to that ofagreements among enterprises and also overlaps with the issue of dominance and its

abuse, discussed earlier. Viewed in this way, there is probably no need to have a separatelaw on mergers. The reason that such a provision exists in most laws is to pre-empt thepotential abuse of dominance where it is probable, as subsequent unbundling can be bothdifficult and socially costly.

Thus, the general principle, in keeping with the overall goal, is that mergers should bechallenged only if they reduce or harm competition and adversely affect welfare.

THE ACTON COMBINATIONS REGULATION

The Act makes it voluntary for the parties to notify their proposed agreement orcombinations to the Mergers Commission, if the aggregate assets of the combiningparties have a value in excess of Rs. 1000 crores (about US $ 220 million) or turnover inexcess of Rs. 3000 crores (about US $ 660 million). The combination as defined by theAct includes mergers, amalgamations, acquisitions of shares, voting rights or assets and


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acquisitions of control. In the event either of the combining parties is outside India orboth are outside, the threshold limits are $500 million for assets and $1500 million forturnover.

If one of the merging parties belongs to a group, which controls it, the threshold limits

are Rs. 4000 crores (about US $ 880 million) in terms of assets and Rs. 12000 crores(about US $ 2640 million) in terms of turnover. If the group has assets or turnoveroutside India also, the threshold limits are $2 billion for assets and $6 billion for turnover.For this purpose a group means two or more enterprises which directly or indirectly have:

y The ability to exercise 26% or more of the voting rights in the other enterprise; ory The ability to appoint more than half the members of the Board of Directors in the

other enterprise; or

y The ability to control the affairs of the other enterprise.

Control includes controlling the affairs or management by

y One or more enterprises, either jointly or singly, over another enterprise or group;y One or more groups, either jointly or singly, over another group or enterprise.

The threshold limits of assets and of turnover would be revised every two years on thebasis of the Wholesale Price Index or fluctuations in exchange rate of rupee or foreigncurrencies.

The Act has listed the following factors to be taken into account for the purpose ofdetermining whether the combination would have the effect of or be likely to have anappreciable adverse effect on competition.

y The actual and potential level of competition through imports in the market;y The extent of barriers to entry to the market;y The level of combination in the market;y The degree of countervailing power in the market;


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y The likelihood that the combination would result in the parties to the combinationbeing able to significantly and sustainably increase prices or profit margins;

y

The extent of effective competition likely to sustain in a market;

y The extent to which substitutes are available or are likely to be available in themarket;

y The market share, in the relevant market, of the persons or enterprise in acombination, individually and as a combination;

y

The likelihood that the combination would result in the removal of a vigorous and

effective competitor or competitors in the market;

y The nature and extent of vertical integration in the market;y The possibility of a failing business;y The nature and extent of innovation;y Relative advantage, by way of the contribution to the economic development, by

any combination having or likely to have appreciable adverse effect oncompetition;

y Whether the benefits of the combination outweigh the adverse impact of thecombination.

Many economists, experts and officials in the Government were of the view that at the

present level of India's economic development, combinations control should not lead tothe shying away of foreign direct investment and participation by major internationalcompanies in economic activities through the route of mergers and acquisitions. Theysuggested that combination approvals (above the specified threshold limits) may not bemade mandatory. Notification of combinations may on the other hand be made voluntary,albeit with the risk of the discovery of anti-competitive mergers at a later date with theconcomitant cost of demergers etc. Another suggestion was to increase the threshold limitby doubling the limits in the draft law. All these suggestions were given due


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consideration by the Government and the draft law refined before it was placed before theParliament. The trigger cause in the aforesaid suggestions was the felt need forcompanies in India to grow in size in order to become globally competitive.

The Act has made the pre-notification of combinations voluntary for the parties

concerned. However, if the parties to the combination choose not to notify the CCI, as itis not mandatory to notify, they run the risk of a post-combination action by the CCI, if itis discovered subsequently, that the combination has an appreciable adverse effect oncompetition. There is a rider that the CCI shall not initiate an inquiry into a combinationafter the expiry of one year from the date on which the combination has taken effect.

The Regulatory Authority, namely, the Mergers Bench of the Competition Commissionof India is mandated by the Act to adjudicate on mergers by weighing potential efficiencylosses against potential gains.

In order that the Competition Commission of India (Mergers Bench) should not delay its

adjudication on whether a merger may pass through or may be stopped because of itsanti-competitive nature, the Act admonishes the Regulatory Authority to hand in itsadjudicatory decision within 90 working days, lest the merger will be deemed to havebeen approved. The Act also provides for limiting the Regulatory Authority's power toask for information from the merging parties within a time frame of 15 working dayswith a corresponding obligation on the merging parties to furnish the information withina further 15 days. Thus by law, the sequencing of the adjudicatory exercise has been setwithin specific time frames, so that possible delays are avoided. Furthermore, mergershave to be approved by the State High Courts under the Companies Act, 1956. Suchapprovals take about 6 months to one year or even more and the 90 working days time

limit for the Mergers Bench will be subsumed in that period.

COMPETITION ADVOCACY

In line with the High Level Committee's recommendation, the Act extends the mandateof the Competition Commission of India beyond merely enforcing the law (High LevelCommittee, 2000). Competition advocacy creates a culture of competition. There aremany possible valuable roles for competition advocacy, depending on a country's legaland economic circumstances. A recent OECD Report noted as follows:

"In virtually every member country where significant reform efforts have beenundertaken, the competition agencies have been active participants in the reform process.This advocacy can include persuasion offered behind the scenes, as well as publicityoutside of formal proceedings. Some competition agencies have the power, at least intheory, to bring formal challenges against anti-competitive actions by other agencies orofficial or quasi-official bodies. More indirect, but still visible, is formal participation in


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another agency's public hearings and deliberations. What is appropriate depends on theparticular institutional setting" (OECD, 1997).

The Regulatory Authority under the Act, namely, Competition Commission of India(CCI), in terms of the advocacy provisions in the Act, is enabled to participate in the

formulation of the country's economic policies and to participate in the reviewing of lawsrelated to competition at the instance of the Central Government. The CentralGovernment can make a reference to the CCI for its opinion on the possible effect of apolicy under formulation or of an existing law related to competition. The Commission ismandated to proffer its opinion to the Central Government within 60 days of receivingthe reference. The Commission will therefore be assuming the role of competitionadvocate, acting pro-actively to bring about Government policies that lower barriers toentry, that promote deregulation and trade liberalisation and that promote competition inthe market place. The Act seeks to bring about a direct relationship between competitionadvocacy and enforcement of competition law. One of the main objectives of competition

advocacy is to foster conditions that lead to a more competitive market structure andbusiness behaviour without the direct penalty loaded intervention of the CCI. Under thescheme of the Act, the CCIs opinion will constitute an important input for theGovernment to finalise its law or policy, in so far as it impacts on competition.

In order to promote competition advocacy and create awareness about competition issuesand also to accord training to all concerned (including the Chairperson and Members ofthe CCI and its officials), the Act enjoins the establishment of a fund christened theCompetition Fund. The Fund will be credited with the fees received for filing complaintsand applications under the law, costs levied on the parties, grants and donations from theGovernment, and the interest accrued thereon.

Finance, Accounts and Audit

The Central Government may some fund which it thinks fit for the purpose of this act. It is to becalled the competition fund. This would include all the grants received by the commission, feesand the interest incurred in them.

This fund would be used for the payment of expenses and salaries of the person associated withit.

Proper records of accounts must be maintained. They would be audited byC

omptroller andAuditor General of India or any other person appointed by him. The audit report shall beforwarded annually to the Central Government.

Competition Appellate Tribunal

The Central Government would establish an Appellate Tribunal to be known as CompetitionAppellate Tribunal that could hear and dispose of appeals against


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Decisions made or orders passed by the Commission or relook at the claim for compensation.

An appeal can be filed within 60 days with the Competition Appellate Tribunal

The Appellate Tribunal consist of a Chairperson other two other members to be appointed by theC

entral Government. They can hold office for a term of five years. The senior most member ofthe Appellate Tribunal would occupy until a new chairperson is appointed or resume his duties.The chair person may also be removed if he:-

y has been adjudged an insolvent; ory has engaged at any time, during his terms of office, in any paid employment; ory has been convicted of an offence which, in the opinion of the Central Government,

involves moral turpitude; or

y has become physically or mentally incapable of acting as such Chairperson or otherMember of the Appellate Tribunal; or

y has acquired such financial or other interest as is likely to affect prejudicially hisfunctions as such Chairperson or Member of the Appellate Tribunal; or

y has so abused his position as to render his continuance in office prejudicial to the publicinterest.

The Act provides for the Government to bring into force its different provisions on differentdates by a notification. Furthermore, it empowers the Central Government by notification to

exempt from the application of the law or any part thereof for such period, as it deems fit,

(a)any class of enterprises if such exemption necessary in the interest of security of the State orpublic interest;

(b)any practice or agreement arising out of and in accordance with any obligation assumed byIndia under any treaty, agreement or convention with any other country or countries ;

(c)any enterprise which performs a sovereign function on behalf of the Central Government or aState Government.

The aforesaid provisions in the Act relating to exemptions should enable the Government to takecare of the country's goals, objectives and needs. The Act provides flexibility to the Government

to use this provision appropriate to the needs of the country.

Any person aggrieved by any decision or order of the Appellate Tribunal may file an appeal tothe Supreme Court within sixty days

The central government can supersede the commission at any point in time if the circumstancesare beyond the control of the commission or the commission has been defaulting in complying orit is in the public interest to supersede the commission can supersede not more than six months.


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During this period the chairperson and the members have to vacate the office. All the powers andthe function for this period of time are vested by the central government.

The commission should not disclose any information of any individual or the body without theentitys written permission.

COMPETITION COMMISSION OFINDIA (CCI)

Administration and enforcement of the competition law requires an administrative set up.This administrative set up should be more proactive than reactive for the administrationof the competition policy. This is not a mere law enforcement agency. Thisadministrative set up should take a proactive stand to be specified and adopted to promotecompetition by not only proceeding against those who violate the provisions of thecompetition law, but also by proceeding against institutional arrangements and publicpolicies that interfere with the fair and free functioning of the markets. It is in this context

that the CCI in the Act has been entrusted with the following two basic functions:

a) Administration and enforcement of competition law and competition policy to fostereconomic efficiency and consumer welfare.

b) Involvement proactively in Governmental policy formulation to ensure that marketsremain fair, free, open, flexible and adaptable.

INVESTIGATION, PROSECUTION, ADJUDICATION, MERGERS COMMISSION AND

COMPETITION COMMISSION

INVESTIGATION AND PROSECUTION

Adjudicative wing is distinct and separate from the investigative wing in the Act. At theapex level of the investigative wing, there is an official who has been designated asDirector General (DG). The Director General will not have suo motu powers ofinvestigation. He will only look into the complaints received from the CCI and submit hisfindings to it. Investigators will be solely responsible for making enquiries, for examining

documents, for making investigations into complaints and for effecting interface withother investigative agencies of the Government including Ministries and Departments.The DG has been vested under the Act with powers, which are conferred on the CCI,namely, summoning of witnesses, examining them on oath, requiring the discovery andproduction of documents, receiving evidence on affidavits, issuing commissions for theexamination of witnesses etc.


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The Act mandates that the investigation staff would need to be chosen from among those,who have experience in investigation and who are known for their integrity andoutstanding ability. They should have knowledge of accountancy, management, business,public administration, international trade, law or economics. Hitherto, in terms of thedispensation under the MRTP Act, they were drawn routinely from those working in the

Department of Company Affairs. The Act thus induces professionalism in theinvestigative wing, a step in the right direction. .

Depending on the load, the Government would create Deputy Directors General in all thecities where Benches ofCCI are situated. They will investigate the cases referred to themfrom the Additional (regional) Benches and submit their findings to them direct withoutnecessarily routing it through Director General at Headquarters. The Act envisages onePrincipal Bench and Additional Benches, besides Merger Bench (es). The schema ofplacement of the investigating staff and the procedure and drill for submission of theirreports to the CCI and its Benches will be laid down, it is expected, by the CCI and the

Government, under Statutory Rules, Statutory Regulations or otherwise.

It is desirable to prepare guidance manuals spelling out the nature, scope and manner ofinvestigation. By and large, the investigation staff should follow these manuals and anydeparture there from must have the prior approval of the Director General. This is toensure that there are no fishing and rowing enquiries designed to threaten and harasscorporates.

ADJUDICATION

Central to effective implementation and enforcement of competition policy andcompetition law is an appropriate competent and effective adjudicative body, in theinstant case, the Competition Commission of India. CCI will be the adjudicating bodyunder the Act with autonomy and administrative powers.

CCI will be a multi-member body with its Chairperson and Members chosen for theirexpertise, knowledge and experience in Economics, Law, International Trade, Business,Commerce, Industry, Finance, Accountancy, Management, Public Affairs orAdministration. The Act stipulates that the Chairperson and Members shall be selectedfrom those, who have been, or are qualified to be Judges of the High Courts or from thosewho have special knowledge of any of the disciplines listed above. They should not onlyhave special knowledge in one or more of the aforesaid areas, but also have experience ofnot less than 15 years therein. Besides, they need to be persons of ability, integrity andstanding.

Each Bench will have a judicial member, as it will have the power of imposing sentencesof imprisonment, in addition to levying fines.


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MERGERS BENCH

For the cases of mergers, amalgamations etc. which need to be examined on thetouchstone of competition, the Act proposes to have a separate Mergers Bench, whichwill be a part of the Competition Commission of India. This is to ensure that there is no

avoidable delay in dealing with such scrutiny, as delays can prevent bodies corporatefrom being competitive globally. An important rider in the merger provisions, as notedearlier, is that if the Mergers Bench does not finally decide against a merger within astipulated period of ninety working days, it would be deemed that approval has beenaccorded.

COMPETITION COMMISSION OF INDIA AND SELECTION OF CHAIRPERSON AND

MEMBERS

In order to ensure competent and effective implementation of competition policy andcompetition law, it is important and imperative to select suitable persons, suitability

having been described in the earlier paragraphs. It cannot be over-emphasised thatGovernment ought to ensure that the CCI is free of political control. The Act, as passedby the Parliament, has left the selection procedure to the Government, which willtherefore frame Rules in this regard. It is believed that the Government has opted for asearch committee procedure for the selection ofChairperson and Members.

The Competition Commission of India was established on the 14th October, 2003.

GUIDING PRINCIPLES

The Competition Commission of India is being guided by the following principles in itsapproach to its work:

1. To be in line with markets; have good understanding of market forces.2. To minimize cost of compliance by enterprises, and cost of enforcement by

Commission.3. To maintain confidentiality of business information; to maintain transparency in

Commission's own operations.4. To be a professional body, equipped with requisite skills.

5. To maintain a consultative approach.

FUNCTIONS

1. CCI shall prohibit anti-competitive agreements and abuse of dominance, andregulate combinations (merger or amalgamation or acquisition) through a processof enquiry.


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2. It shall give opinion on competition issues on a reference received from anauthority established under any law (statutory authority)/Central Government.

3. CCI is also mandated to undertake competition advocacy, create public

awareness and impart training on competition issues.

STATUSOF THE CHAIRPERSON &MEMBERSOFCCI

The status of the Chairperson and Members of the CCI has been left to the Governmentfor specification by Statutory Rules. It is understood that the Government has prescribedthe status of the Chairperson to be equal to that of a Judge of the High Court and that ofthe Members to be equal to that of a Secretary to the Central Government. Futhermore,

according to the Act, the age cap for the Chairperson is 67 years and that for theMembers is 65 years. The Act has created a bar for the Chairperson and Members for aperiod of one year from the date on which they cease to hold office, to accept anyemployment in, or connected with the management or administration of any enterprisewhich has been a party to a proceeding before the Commission under the Act.

EXEMPTIONS

The Act provides for the Government to bring into force its different provisions ondifferent dates by a notification. Furthermore, it empowers the Central Government bynotification to exempt from the application of the law or any part thereof for such period,

as it deems fit,

(d)any class of enterprises if such exemption necessary in the interest of security of theState or public interest;

(e)any practice or agreement arising out of and in accordance with any obligationassumed by India under any treaty, agreement or convention with any other countryor countries ;

(f)any enterprise which performs a sovereign function on behalf of the CentralGovernment or a State Government.

The aforesaid provisions in the Act relating to exemptions should enable the Governmentto take care of the country's goals, objectives and needs. The Act provides flexibility tothe Government to use this provision appropriate to the needs of the country.


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APPEAL AND REVIEWPROVISIONS

Appeals against decisions and orders of the CCI lie to the Supreme Court within thelimitation period of 60 days. Appeals can be on one or more of the grounds specified inSec. 100 of the Code ofCivil Procedure. Thus, the status given to the CCI is very highwith only the Supreme Court having the power to overturn its orders.

The CCI has power under the Act to review its own order on an application made by theparty aggrieved by its order.

EXTRATERRITORIAL REACH

The Act has extra-territorial reach. Its arm extends beyond the geographicalcontours of India to deal with practices and actions outside India which have anappreciable adverse affect on competition in the relevant market in India. TheCompetition Commission of India has the power to enquire into an agreement, abuse ofdominant position or combination, if it has or is likely to have an appreciable adverseaffect on competition in the relevant market in India, notwithstanding that,

y An agreement has been entered into outside India;y Any party to such agreement is outside India;y Any enterprise abusing the dominant position is outside India;y A combination has taken place outside India;y Any party to combination is outside India; ory Any other matter or practice or action arising out of suchy Agreement or dominant position or combination is outside India.

The above provisions are based on what is known as the effects doctrine. This doctrineimplies that even if an action or practice is outside the shores of India but has an impactor effect on competition in the relevant market in India. It can be brought within theambit of the Act, provided the effect is appreciably adverse on competition.

Case studies

On January 19, 2006 Jet Airways announced that it was to buy Air Sahara for $500million in an all-cash deal. Everything, including Sahara's assets andinfrastructure, would belong to Jet Airways. This deal would have been thebiggest in India's aviation history and the resulting airline the country's largest,had it gone through. Market reaction to the deal was mixed, with many analystssuggesting that Jet Airways was paying too much for Air Sahara. The deadline for


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the deal to be completed was June 21, 2006, but in the days before this, thechances of the takeover being completed began to look shakier. Jet Airwaysclaimed that a final sticking point was the government's delay in approving Jetchairman Naresh Goyal's appointment to the Air Sahara board. Air Saharacountered that Jet Airways had engineered this impasse by delaying the request

for such approval, as a way of extricating themselves from a deal they nowregretted. Jet was said to be willing to go ahead with the deal only if the originallyagreed price was lowered by 20-25% on the basis of Air Sahara's mounting debts,an option which was firmly rejected by Air Sahara. Finally both sides confirmedthat the deal was off. Following the failure of the deals, the companies have nowfiled lawsuits seeking damages from each other.

NETSCAPE V/S MICROSOFTNetscape Communications, a division of AOL Time Warner, filed suit againstMicrosoft claiming that the software giant's business practices crushed theonetime upstart's Internet browser. The lawsuit alleges that, beginning in 1995,

Microsoft harmed Netscape in a series of illegal acts aimed at promotingMicrosoft's Internet Explorer browser at the expense of Netscape Navigator, theWeb browser by Netscape many credit with having been the catalyst forconsumer adoption of the Internet. The suit seeks injunctive relief sufficient toprevent further antitrust injury to Netscape and an award of treble damages to bedetermined at trial. In November 1999, Judge Thomas Penfield Jackson had alsofound that while Microsoft had improperly used its dominance of the PCoperating system market to grab a 60 percent share ofthe browser market."Netscape's lawsuit is a sort of an extension of the findings entered by theDistrict Court and unanimously affirmed by the Court of Appeals that Microsoftthwarted competition, violated the antitrust laws and illegally preserved itsmonopoly at Netscape's expense. Netscape was seriously damaged byMicrosoft's (illegal) conduct in at least the following ways: it lost browserlicensing revenues; it lost browser market share that would have led to othersignificant sources of revenues, including portal revenues and revenues from itsenterprise software and products businesses; its marketing and distributioncosts were significantly increased; it lost goodwill and going concern value; andit lost the profits that would have existed if Microsoft had not acted illegally toprevent Netscape's browser technology from providing a competitive alternativeto Microsoft's monopoly operating system as a development platform

ConclusionIt is a question of time before the Competition Act replaces the MRTP Act. The efficacy of theact will be seen in its implementation. In an economic situation, which can be best described as amixed economy; only time will tell whether the Competition Act addresses the ground realitiesthat exist today. However, the new Act is definitely a step in the right direction by harmonizingthe competition policy with international trade and policy.

Also multilateral cooperation is vital to the protection of competition. While trade liberalization,privatisation, deregulation and the great potential for borderless Internet electronic commerce all


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help to remove trade barriers, these trends can also enhance opportunities for cross-border anti-competitive behaviour. In an increasingly globalised marketplace, the promotion of coordinatedcompetition laws and policies are essential.

The objective ofCompetition Policy is to promote efficiency and maximum welfare. There are

two elements of aC

ompetition Policy; one is a set of regulatory policies that enhancecompetition in local and national markets, give primacy to market forces, allow entry and exit,reduce administrative controls and minimize regulations. The other area of competition policy isa law to prohibit anti-competitive business as well as practices and regulate acquisitions,amalgamations or mergers that might adversely impact competition. Modern Competition Lawcan be viewed as a basic system of rules, which are designed as far as possible to allow marketsto function properly. It is designed to prohibit abuses of market power, whether by an individualfirm or by a group of firms acting collectively, but otherwise to allow markets to operateunhindered. An effective Competition Policy promotes the creation of a business environment,which improves static and dynamic efficiencies and leads to effective resource allocation, and inwhich the abuse of market power is prevented mainly through competition. Where this is not

possible, it requires the creation of a suitable regulatory framework for achieving efficiency. Thescope of competition policy is broad and essentially includes all Governmental measures thatdirectly influence the conduct and behaviour of enterprises and the structure of industry with theobjective of promoting efficiency and maximizing welfare. To the extent the implementation ofcompetition policy requires legal backing there is need for a competition law. Whereas theformer covers a whole array of executive policies and approaches, the latter is a piece oflegislative enactment having the character of enforceability in a court of law.

The International Competition Network (ICN)

The roots of the ICN can be traced back to the recommendations of the InternationalCompetition Policy Advisory Committee, a group formed in 1997 by United States. Thecommittee was mandated to consider the practicality of enhancing international competition inlight of economic globalisation. It focused on issues such as multi-jurisdictional merger review,the interface between trade and competition and the future direction for cooperation.

The ICN is unique in two regards. It is the only international body devoted exclusively tocompetition law enforcement, and it is the first competition forum supported by participatingauthorities themselves. Its primary mission is to provide antitrust agencies from both developedand developing countries with a strong and broad network to address practical competitionenforcement and policy issues of common concern. Membership is open to all national andmultinational competition authorities sharing the objectives of promoting and protecting acompetitive marketplace. The process itself for joining the ICN is simple, but qualifyingmembers must be national or multinational competition agencies that enforce competition laws.The ICN encourages the dissemination of antitrust experience and best practices, promotes theadvocacy role of antitrust agencies and seeks to facilitate international cooperation. The ICN'sworking group focuses on a limited number of issues at any one time, concentrating their effortson matters that are challenging yet capable of resolution.

Competition is the engine of market economy (Autosaved)

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