Dr. KUMUDHA RATHNA

THE COMPETITION LAW

INTRODUCTION:

GENESIS: The Govt. decided to liberalize its economic policy in

1991 because of the financial crisis & opened up its economy to the

international market, inviting private investment, i.e., LPG. Due to

this it had to fulfil obligations under World Trade Organization

(WTO), General Agreement on Trade & Services (GATS), Trade

Related Aspects of Intellectual Property Rights (TRIPS) etc.

MRTP Act, 1969 was enacted mainly to contain the concentration of

economic power & therefore wasn’t suited to deal with issues

relating to preservation & protection of competition, in the new

business environment.

Also, as certain provisions in the MRTP Act were obstructive to

private investment, they were deleted. (Eg: Prior approval of the

Govt. for enterprises slowed the entry of foreign enterprises into

India, consequently the provisions dealing with monopolistic

enterprises seeking prior approval were deleted from the Statute).

Only powers to Order division of undertaking or to direct severance

of inter-connection of undertakings were retained, but these

powers were never used. Thus the MRTP became a toothless tiger.

In the wake of influx of large MNCs, on opening up of the economy

of the country & the enlargement of the range of goods/services

offered to the consumer-a specific Law for preserving competition

became essential.

Dr. KUMUDHA RATHNA

Also, all over the world, it was found that private monopolies can

be detrimental to national economy & control was required. Fair &

free competition is required for growth of a healthy economy.

The Central Govt. in 1999, appointed a high-level committee (The

Raghavan Committee) on competition policy & Law, to study the

Indian economic scene & make recommendations for a competition

policy, to provide for a basic legislation to meet the needs of the

nation, pertaining to this aspect.

The TOR (Term of Reference) to the Raghavan Committee (RC)

were as follows:-

o Suitable legislative framework (in the light of international

developments) to meet the needs of promoting competition;

o Laws relating to mergers & demergers;

o Such legis framework could entail a new Law OR appropriate

amendments to the MRTP Act, 1969.

SALIENT FEATURES OF THE REPORT OF THE RAGHAVAN

COMMITTEE:

The term ‘Competition’ has been used sparsely in the MRTP

Act (only in 2 places);

Lack of precise definitions of crucial terms such as-

dominance, cartel, collusion, boycott, refusal to deal, bid

rigging, predatory pricing etc. These are necessary to

effectively detect such behaviour & impose sanctions against

them. Lack of precise definitions had led to different judicial

interpretations, sometimes contradictory .

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So, MRTPC (Monopolies & Restrictive Trade Practices

Commission) is constrained to fit anti-competitive behaviour

into 1 or more of the provisions of the Law in the absence of

precise definitions.

The term ‘Cartel’ not mentioned or defined in any

section/clause.

Existing Law inadequate to deal with implementation of the

WTO agreements.

No merger control provisions. Committee recognized the

necessity of having specific merger control provisions at par

with other modern competition Laws.

Provisions dealing with unfair trade practices overlap with

similar provisions in the Consumer Protection Act, 1986 &

MRTP Act, 1969.

Emphasised about anti-competitive practices as follows,

‘...the MRTP Act, in comparison with Competition Laws of

many countries, is inadequate for fostering competition in the

market & trade & for reducing, if not eliminating, anti-

competitive practices in the country’s domestic &

international trade.’

Thus, the RC declared the MRTP Act to be falling short of

addressing competition and anti-competitive practices.

SUGGESTION OF RC:

Desired that the new Law focus on preventing anti-

competitive practise, ‘...the only legitimate goal of

Competition Law is the maximization of economic welfare.’

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Competition authority should be governed by established

competition principles.

There is to be a balance between over-intervention &

exception from sanction in the name of ‘Public interest’.

Essential to have merger control provisions in the new

legislation. But, suggested a soft approach, i.e., voluntary

notification for mergers.

That government enterprises & departments should be

brought under the purview of Competition Law. Only

exception-sovereign functions of the government (Eg:

Defence).

Policy of purchase/price preference to government owned

enterprises was recommended to be discontinued. (This

recommendation was in spite of the fact that many countries

exempt government enterprises from purview of the

Competition Law).

There should be no distinction between ultimate consumer &

intermediate consumer.

While the Committee presumed some anti-competitive

behaviour to be injurious to competition, it recognized the

primacy of rule of reason test for the rest. The primacy of rule

of reason test over per se rule is universal among modern

competition Laws; the latter being invoked only against hard-

core anti-competitive behaviour (Eg: Cartelization).

Suggested the setting up of a specialized agency to try

competition cases & opined that this is suitable in developing

countries (though, in many countries competition cases are

tried by Courts).

Dr. KUMUDHA RATHNA

Recommended in detail regarding the admn setup of an

(i) independent & autonomous competition authority -stating

that its main objectives should be to (ii)administer the

competition Law & engage ‘proactively in Governmental

policy formulation’ (proceedings shd be (iii)transparent). That

the authority shd be (iv)manned by experts in various fields

who can be removed only with the concurrence of the SC of

India. (v)Jurisdiction-shd be extra-territorial. (vi)Powers to-

punish the guilty & levy fines.

Much emphasis on competition advocacy by competition

authority (Reason-lack of/low awareness of competition

issues among stakeholders).

Need for a Competition Law Tribunal (CLT) (Competition

Commission of India-CCI) that will act as a watchdog for the

introduction & maintenance of competition policy .

Emphasised the importance of co-ordination of different

policy measures of the Govt. for effective implementation of

competition policy.

There should be progressive reduction & ultimate elimination

of reservation of products for the small-scale industries & the

handloom sector.

Proposed legislation should cover all industries in the public

& private sector & professional services.

Based on its analysis, The RC found it more expedient to have a

new competition Law. This report formed the genesis of the

modern Competition Law, vide a Central Law, The Competition Act,

2002.

Dr. KUMUDHA RATHNA

The Competition Law (i.e., Competition Act, 2002) was enacted in

January.2003-after taking into consideration the recommendations

of the (i)Raghavan Committee & deliberations of the (ii)Standing

Committee on Finance.

The Act was introduced at a time when large MNCs were taking

advantage of India’s liberalized economic policy, permitting greater

participation of overseas companies in economic activities in India.

Indian industry, used to protection, belatedly recognized the gross

inequality between them & the MNCs-in terms of size & experience

& Govt. endeavoured to set up a level playing field by means of this

Enactment.

The progress of this Act was stymied thru BRAHIM DUTT V. UOI

filed in the SC-challenging the authority of the Central Govt. to

appoint the Chairperson & member of the CCI (Qualification for the

Chairperson-A person of ability, integrity & standing who-(i)has

been/is qualified to be a Judge of HC or (ii)has spl knowledge of &

professional experience of not less than 15 yrs in international

trade, economics, business, commerce, Law, Finance,

accountancy, management, industry, public affairs, admn or in any

other matter, which in the opinion of the C.Govt. may be useful to

the Commission).

Ground of Challenge-

a) CCI envisaged by the Act was more of a judicial body having

adjudicatory powers & applying the Doctrine of Separation of

Powers (recognized in the Indian Constitution)-the right to

appoint the judicial members of the Commission should rest

with the Chief Justice (CJ) of India or his nominee.

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b) Chairman of the Commission shd necessarily be a retired CJ of

SC/HC-to be nominated by the CJ of India or by a Committee

presided over by the CJ of India.

c) Appointment of a civil servant, sans reference to the head of the

Judiciary was argued as being undesirable in Law, considering

the purpose of the Act & the functions to be discharged by the

Competition Commission.

Central Government’s representation-

a) C.Govt. intended to make certain amendments to the Act carry

into effect the selection of the Chairperson & members of the

Commission by a Committee presided over by the CJ of India or

his nominee.

b) Chairman of the Commission would be an expert in the field &

that it wasn’t necessary for him to be a Judge of the SC/HC.

SC was satisfied with the response of the C.Govt. & closed the WP

on Jan.2005 sans pronouncing on the issues raised & left open all

questions regarding the validity of the Enactment to be decided

after the amendments of the Act, if there came up any challenge to

the amended Act.

In the light of the Order of the SC, the C.Govt. introduced into

Parliament-the Competition (Amendment) Bill, 2006. The bill was

referred to the Parliamentary Standing Committee on Finance

(2006-07) & after taking into account its recommendations, the

Competition (Amendment) Bill, 2007 was introduced into

Parliament & after approval by both Houses, the Competition

(Amendment) Act, 2007 received the assent of the President on

24th.Sept.2007.

Dr. KUMUDHA RATHNA

PRINCIPAL AMENDMENTS are as follows:

i. Composition of the Competition Commission;

ii. Selection Committee for Chairperson & members;

iii. Appointment of the Secretary/experts/officers & other employees

of the Commission;

iv. Provision that a mandatory notice shall be given to the

Commission by any person/enterprise proposing to enter into a

combination to which the Act applies (previously the notice was

optional);

v. Establishment of the Competition Appellate Tribunal (CAT)-

(quasi-judicial body);

vi. Its composition/selection of Chairperson & members/procedure

for appeals;

vii. Provision for appeal to the SC (against the Orders of the CAT);

viii. Repeal of the MRTP Act & dissolution of the MRTP Commission.

DISTINCTION BETWEEN MRTP ACT & COMPETITION ACT:

Sl.

No.MRTP ACT COMPETITION ACT

1. Regarding problems of monopoly

& anti-competitive practices from a

Legal perspective.

Considers these issues as economic

issues to be dealt with from an economic

viewpoint.

2. MRTP Commission was conceived

as a quasi-judicial body,

comprising of both judicial & non-

judicial members (headed by a

person who is/was a Justice of

SC/HC).

Competition Commission conceived as a

regulatory body of experts in economic

affairs looking at the issues from the

angle of their economic impact on

business etc.

3. Commission was sitting as

Benches.

No benches, as there will be no

complaint, but only information or

Dr. KUMUDHA RATHNA

reference.

4. Hearings held of parties. No hearings, only meetings.

To ensure that Legal issues were also given importance, the Competition Appellate

Tribunal (CAT) was established with provision for a further appeal to SC. Thus,

Competition Act is an improvement on MRTP Act.

OBJECTIVES OF COMPETITION ACT:

As per the Preamble to the Act -

1) Prevent practices having an adverse effect on competition;

2) Promote & sustain competition in markets;

3) Protect the interests of consumers;

4) Ensure freedom of trade carried on by other participants in

markets in India;

5) For dealing with matters connected therewith or incidental.

ANTI COMPETITIVE AGREEMENTS:

One of the objects of the Competition Act as stated in the Preamble

is to prevent practices having adverse effect/s on competition. The

principal objective of suppliers (of goods/services) who are in a

position to manipulate the market-is to maintain their profits at pre-

determined levels & ultimately reduce & eliminate competition.

Usual modes resorted towards achieving this end are-Egs:

Agreements for price-fixing, limiting supply of goods/services,

dividing the market etc.

DEFINITION OF TERMS:

1) AGREEMENT : [S.2(b)]:

(Includes)-any-arrangement, understanding, action-in concert.

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a. Needn’t be a formal arrangement (Eg: Even a gentlemen’s

ag would come within the term ‘understanding’);

b. Needn’t be in writing;

c. Whether or not it is intended to be enforceable by Legal

proceedings.

(Eg: The info forming the basis for action (against the cartel) may

be contained in minutes of meetings, memoranda, records of

telephone conversations, correspondence etc – CASE LAW-

LOMBARD CLUB, Re).

Parties: could be-bet-(i)Enterprises; (ii)Association of enterprises;

(iii)Persons; (iv)Association of persons or (v)Combi of any of these

entities.

Subject Matter Of Agreement: Production, supply, distribution,

storage, acquisition, control of goods or provision of services.

Where these agreements cause or is likely to cause an appreciable

adverse effect on competition within India, it is prohibited &

declared void [S.3(1)].

FACTORS TO BE CONSIDERED (by the Commission) in

determining whether an ag has an appreciable adverse effect on

competition: [S.19(3)]:

a) Creation of barriers to new entrants in the market;

b) Driving existing competitors out of the market;

c) Foreclosure of competition by hindering entry into the market;

d) Accrual of benefits to consumers;

e) Improvements in production/distribution of goods/provisions of

services;

f) Promotion of technical/scientific/economic developments by

means of production/distribution of goods/services.

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2) CARTEL : [S.2 (c)]:

(Includes) An association of producers, distributors, sellers,

traders, service providers-who-by ag amongst themselves-limit,

control/attempt to control-production, distribution, sale, price of,

trade in goods or provision of services.

Cartel is a presumed anti-competitive agreement.

Effect:

o Restriction of competition;

o Consequent loss of benefits to the consumer that an

unhindered market would’ve offered.

o Depending upon the size of the members of a cartel & the

volume of business they control, the harm they could cause

to the economy would be huge.

CASE LAW:

MADRAS JEWELLERS & DIAMOND MERCHANTS’

ASSOCIATION, Re –Trade Association asking its members

not to sell below the rates announced by it, with a threat of

expulsion in the event of non-compliance-HELD-It’s a cartel.

DGIR v. MODI ALKALI –OBSEVATION-‘3 essential

ingredients of cartel are-(i)Parity of prices; (ii)Ag by way of

concerted action suggesting conspiracy; (iii)To gain

monopoly/restrict/eliminate competition’.

SUMITOMO CORPN IN, Re –HELD-Cartelisation imposes

unjustified cost on consumers. Price fixing is illegal per se,

therefore, further enquiry on the issue of intent or the anti-

competition effect is not required.

HARIDAS EXPORTS v. ALL INDIA FLOAT GLASS

MFGRS ASSOCIATION –HELD-Protecting inefficient

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industry is not ‘public interest’ & in such cases ‘cartel’ is

permissible-OBSERVATION-MRTP Commission can’t pass an

injunction for imports at predatory prices-If the cartel is

selling goods to India (at lower prices) & still making profit, it

will not be in the interest of general body of consumers in

India to prevent import of such goods. The era of

protectionalism is now coming to an end.

Expln: Meaning- predatory pricing : It’s the practice of selling a

product/service at a very low price, (i)intending to drive

competitors out of the market, or (ii)create barriers to entry for

potential new competitors. If competitors can’t sustain equal or

lower prices without losing money, they go out of business or

choose not to enter the business. The predatory merchant then

has fewer competitors or is having monopoly & can later raise the

prices (to even supra competitive pricing level).

The predatory merchant undergoes short-term pain for long-term

gain. But, the predator would succeed only in adopting this

strategy only if it is (i)substantially stronger than its competitors &

when (ii)barriers to entry are high, preventing new entrants from

replacing others driven out, thereby allowing supra competitive

pricing to prevail long enough to dwarf the initial loss.

Thus predatory pricing is a risk, may not always work out. Eg: (i) In

U.S. Herbert Dow (founder of Dow Chemical Company) not only

found a cheaper way to produce bromine (bromine extraction from

bromide using electrolysis) but also defeated a predatory pricing

attempt by the Govt. supported German Cartel Bromkonvention

which objected to his selling in Germany at a lower price &

retaliated by flooding the U.S. market with below-cost bromine, at

an even lower price than Dow’s. But, Dow simply instructed his

Dr. KUMUDHA RATHNA

agents to buy up at the very low price, then sell it back in Germany

at a profit but still lower than Bromkonvention’s price. In the end,

the cartel couldn’t keep up selling below cost, and had to give in.

(ii) Alleged predatory pricing is – Microsoft released their web-

browser IE for free. As a result the market leader & primary

competitor Netscape was forced to release Netscape Navigator for

free in order to stay in the market. IE’s free inclusion in Windows

led to it quickly becoming the web browser used by most computer

users.

3) ENTERPRISE : [S.2 (h)]:

A person/dept of Govt.-who/which-

Is/has been engaged in any-activity relating to-

o production, storage, supply, distribution, acquisition or

control of article/goods/services (of any kind) OR-

o in investment OR

o in the business of-acquiring, holding, underwriting or

dealing with shares/debentures/other securities-

of a body corporate (directly/indirectly or thru 1 or more of its units,

divisions or subsidiaries)-

Whether the enterprise & these units etc are located in the

same or different places.

DISCLUDES-Any activity of the Govt. related to sovereign functions

of the Govt. including all activities carried on by the depts. of the

Central Govt. dealing with atomic energy, currency, defence &

space.

[Explns: Activity-includes-profession/occupation;

Article-includes-new article;

Services-includes-new services;

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Unit/division-includes-plant/factory-established for-production,

storage, supply, distribution, acquisition, control-of any article,

goods-any branch/office/established for provision of any service.

Goods-as defined in the Sale of Goods Act, 1930 & includes-

Products manufactured/processed/mined;

Debentures/stocks/shares (after allotment);

In relation to goods supplied, distributed or controlled in

India, goods imported into India].

No Exemption to: Public Sector Undertakings (PSU) & enterprises

controlled by Govt.

4) PERSON : [S.2 (l)]:

Includes-

Individual;

HUF;

Company;

Firm;

Association of persons or body of individuals (whether

incorporated or not in India or outside India);

Any corpn established by/under any Central, State or

Provincial Act or Govt. Co. as defined in s.617 of the

Companies Act, 1956;

(S.617: Where not less than 51% of the paid-up share capital

of the Co. is held by the C.Govt. or any S.Govt. or by both of

them. Same applies to corpns established by any Central,

State, Provincial Act.)

Any body corporate incorporated by/under the Laws of a

country outside India;

Co-operative society registered under any Law relating to co-

operative societies;

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Local authority;

Every artificial juridical person (not comprised in any of the

above sub-clauses).

[Expln: As s.2(h) defines enterprise as including profession or

occupation-members of any profession would have to conform to

the provisions of the Competition Act.]

S.32: Empowers the Commission to inquire into anti-competitive

acts taking place outside India-but-having an effect on competition

in India.

5) GOVERNMENT : [S.2(h)]:

A person/dept. of Govt.-engaged in the supply of goods/services.

INCLUDES – All economic activity other than the exceptions-

carried on by the Govt. or Govt. undertaking, PSU (by whatever

names called).

EXCLUDES – (i)Any activity of the Govt. relatable to the sovereign

functions of the Govt.; (ii)Including all activities carried on by the

depts. of the C.Govt dealing with atomic energy, currency, defence

& space.

6) PRICE : [S.2(o)]:

INCLUDES-any form of valuable consideration (direct/indirect)-

which in effect relates to the sale of goods or to the performance of

any services-even though ostensibly relating to any other

matter/thing.

If the parties agree-may be a deferred payment.

7) SERVICES : [S.2(t)]:

Of any description-made available to potential users (INCLUDES-

services in connection with business of any industrial/commercial

matters).

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Eg: Banking, insurance, chit funds, real estate, storage, transport,

construction, advertising, conveying news/info, education,

boarding, lodging etc.

CASE LAW:

TMA PAI FOUNDATION v. STATE OF KARNATAKA –

HELD-Education is a service. Even if there is any doubt about

whether education is a profession or not, it does fall within

the meaning of the expression.

P.A. INAMDAR v. STATE OF MAHARASHTRA –HELD-

Education which is a useful activity & irrespective of whether

for charity/profit-is an occupation.

8) TRADE : [S.2(w)]:

Trade/business/industry/profession/occupation-relating to-

production/supply/distribution/storage/control of goods/services.

[Trade] PRACTICE (habitual/custom) [S.2(l)]: Practice relating to the

carrying on of any trade by a person/enterprise.

PERSUMED ANTI-COMPETITIVE PRACTICES:

Any ag entered into between enterprises/associations of

enterprises/persons/associations of person/s & enterprise/s

including cartels (engaged in identical/similar trade of

goods/services)-decision taken which-

i. Directly/indirectly determines purchase/sale prices;

ii. Limits/controls -production/supply/markets/tech

development /investment or provision of services;

iii. Shares the market or sources of production/services by way

of-allocation of geographical area of market/types of goods/

services/# of customers in the market/any other similar way;

iv. Directly/indirectly results in bid rigging or collusive bidding

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Shall be presumed to have an appreciable adverse effect on

competition.

EXCEPTION: Doesn’t apply to-Joint venture agreements-IF such

ags increase efficiency in production/supply/distribution/storage/

acquisition or control of goods/services.

Onus of proof: lies on the deft to prove that there isn’t any

appreciable adverse effect on competition.

PROHIBITION IF THE AGREEMENT AFFECTS COMPETITION:

HORIZONTAL (CARTELS) & VERTICAL RESTRAINTS:

VERTICAL RESTRAINTS: [S.3(4)]:

Any agreement amongst enterprises/persons-at different stages or

levels of-the production chain in diff markets-in respect of

production, supply, distribution, storage, sale, price of, trade in-

goods/services-shall be an agreement in contravention of S.3(1)-IF

such ag causes or is likely to cause an appreciable adverse effect

on competition in India (i.e., by applying the rule of reason).

There could be other types of ags falling u/s.3(4) as those stated in

the sub-section are not exhaustive, i.e., gives an ‘inclusive’

definition of each of the vertical restraints, meaning-there could be

other vertical restraints also.

(Simple) DEF: Where the parties (to the ag) are in diff stages/levels

of the production chain, this practice is called a vertical restraint.

WISCONSIN ELECTRIC CO v. DUMORE CO (OHIO) –

OBSERVATION-‘The equitable Doctrine of ‘Unfair Competition’ is

not confined to cases of actual market competition between similar

products of different parties, but extends to all cases in which 1

party fraudulently seeks to sell his goods as those of another.’

RELEVANT MARKET: [s.2(q)]:

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The market which may be determined by the Commission with

reference to the relevant product market or the relevant geographic

market or with reference to both the markets.

TYPES:

RELEVANT GEOGRAPHIC MARKET: S.2(r): A market comprising

the area in which the conditions of competition for supply of goods

or provision of services or demand of goods/services are distinctly

homogeneous & can be distinguished from the conditions

prevailing in the neighbouring areas.

Eg: If customer preferences for a particular quality/price of the

product are different in a neighbouring area, the composition of the

geographical market is different in the 2 places & what shd be

considered as the relevant geographic market in that case is only

the area where the conditions of competition are homogeneous.

RELEVANT PRODUCT MARKET: S.2(s): A market comprising all

those products/services which are regarded as inter-changeable or

substitutable by the consumer, by reason of characteristics of the

products/services, their prices & intended use.

Eg: (Case Law – United States v. Du Pont & Co) Relevant market for

Cellophane is the market for flexible packaging materials, as

cellophane is interchangeable with numerous other materials, & is

therefore a part of the market for flexible packaging materials.

Quote regarding interchangeability-from above case –‘This

interchangeability is largely gauged by the purchase of competing

products for similar uses considering the price, characteristics &

adaptability of the competing commodities.’

If the effect of an agreement (includes-any arrangement,

understanding or action in concert) is such that it will significantly

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reduce the level of competition existing at the time the agreement

is given effect, the ag may be stated as anti-competitive.

PRO-COMPETITIVE BENEFITS OF VERTICAL RESTRAINTS:

Sometimes, a vertical restraint, depending upon the structure of the

market for a product, may be shown to be pro-competitive without

any harm to the competitive process. The restraints may be

necessary in some situation to ensure that the sales support to the

retailers extended by the manufacturers may not be exploited by

the free riders.

AGREEMENTS LIKELY TO ADVERSELY AFFECT COMPETITION:

A. RESTRICTIONS ON OUTPUT/SUPPLY : EXCLUSIVE

DISTRIBUTION AGREEMENT: [S.4-Expln (c)]:

Agreements that limit/control-production, supply, markets,

technical development, investment or provision of services is a

presumed anti-competitive agreement.

As stated in the MRTP Act it means-Ags to restrict/with hold/limit-

output/supply of goods or allocate any market or area/s for the

disposal of goods.

CASE LAW:

DGIR (Director General Of Investation & Registration)

v. BAYER (INDIA) LTD – Condition in ag with distributor that

he will not make supplies to chemists, Doctors & Govt. or private

institutions even though he accepts the order. Seller will sell

directly to these customers without any commission to the

distributor-HELD-Anti-competitive ag.

DGIR v. TITAN INDUSTRIES –There was a clause in

agreement with franchisee that the franchisee will not deal in

products/goods of a similar nature-for a period of 3 years from

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the date of determination of ag within radius of 5 Kms from

showroom-HELD-It is restrictive trade practice.

DGIR v. RAJSHREE CEMENT –HELD-An agreement

containing the clause that the dealer will concentrate on a

particular area is permissible if there is no prohibition on him

from effecting sales in other areas.

DELHI CLOTH & GENERAL MILLS Co LTD; DGIR v. MODI

INDUSTRIES LTD; DG v. BHARAT COMMERCE &

INDUSTRIES LTD; PIRAMAL HEALTH CARE LTD, In Re –

HELD-In ag with agents, restrictions as to dealing in similar

goods or as to territory-permissible-REASON-To avoid unhealthy

competition between agents.

B. TIE-IN-SALE : (or-Full line forcing): [S.4-Expln (a)]:

Includes any ag requiring (compulsorily forcing) a purchaser of

goods-to purchase some other goods along with the goods he

wishes to purchase (as a condition of such purchase).

A product/service is to be treated as being the subject of a tie-in-

agreement-when its supply is offered on the condition that the

buyer who ordered for the product/service (the basic product) must

also purchase some other product/service.

The product/service required by the buyer is called-tying product.

The one that is forced on the buyer is called the-tied

product/service.

Hence, the buyer is required (compelled) to buy also a product or

service he doesn’t need-thereby forced to incur unnecessary

expenditure.

But-under Competition Law-reasoning is different-it is

objectionable on the ground that it reduces competition in the

supply of the tied product.

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CASE LAW:

In Re, R.P. ELECTRONICS –Asking customer to enter into

service contract while buying goods.

CHANAKYA & SIDDHARTA GAS Co, In Re –Requiring

customer to buy gas stove while giving gas connection.

DGIR v. STATE BANK OF INDIA –Bank asking person to

keep fixed deposit with Bank while allotting him a locker (as

there is direction of RBI not to insist on bank deposit for locker).

AMAR JEEVAN PUBLIC SCHOOL, In Re –School making it

compulsory to buy uniforms & books only from its own shop.

UNITED RADIO & TELEVISION Co, In Re –Compelling

customer who is buying TV to also buy voltage stabiliser from

the seller.

KHANDELWAL PHOTOSTAT v. KORES INDIA LTD –

Insisting on service contract at the time of sale of goods.

TCI, In Re –Not tie-in sales-egs: (a)Insistence by car

manufacturer that, during the warranty period, air-conditioner can

be fitted to car only by authorised dealer to ensure that improper

air-conditioner doesn’t affect performance of car during warranty;

(b)Manufacturer requiring distributors to maintain minimum

quantity of spares for machinery & equipment supplied by them-to

ensure prompt service; (c)Transporter charging additional amount

for goods carried at carrier’s risk-there was no compulsion on

customers-they could send goods either at owner’s risk or at

carrier’s risk. Hence, charging extra amount by transporter for

taking goods at his risk is not tie-in sales.

C. EXCLUSIVE SUPPLY AGREEMENT : [S.4-Expln (b)]:

Dr. KUMUDHA RATHNA

Includes-any agreement restricting in any manner the purchaser in

the course of his trade from acquiring or otherwise dealing in any

goods other than those of the seller or any other person.

D. EXCLUSIVE DEALING AGREEMENT : Was a RTP under MRTP

Act.

Meaning – Not to deal with goods other than those of seller.

CASE LAW:

BHARATIA CUTLER HAMMER LTD, In Re – Manufacturer of

‘A’ type of scooter stipulating that dealer of ‘A’ should not deal

in any other type of scooter, i.e., manufacturer asking dealer not

to deal in similar products of his competitor, directly/indirectly.

Condition that dealer shouldn’t deal in other’s goods and

discontinuation of supplies on the ground that dealer also deals

in products of supplier’s competitors –HELD-RTP.

DGIR v. STUDDS ACCESSORIES (P) LTD –Buyer asking

manufacturer not to manufacture identical goods for any other

buyer without consent of buyer .

DGIR v. MUNDIPHARMA AG –Agreement that distributor will

purchase goods only from the manufacturer or from other as

may be nominated by him.

VADILAL ENTERPRISES LTD. In re –Territorial restrictions,

i.e., not to sale beyond prescribed territory.

DGIR v. KOTHARI ELECTRONICS –HELD-Exclusive dealing

cannot be permitted unless it is shown that it is in public

interest.

EXCLUSIVE DEALING AG-PERMITTED:

CASE LAW:

TATA ENGINEERING (TELCO) v. RRTA (Registrar Of

Restrictive Trade) –Exclusive dealing & territorial restrictions

Dr. KUMUDHA RATHNA

were held reasonable as it led to prompt after-sales service to

buyers & hence were permitted.

GUJARAT BOTTLING Co LTD v. COCA COLA –SC-HELD-

Negative covenant restraining franchises from dealing with

competing goods during term of franchise agreement is valid-

not RTP.

E. RESALE PRICE MAINTENANCE [S.4-Expln (e)]: DIRECTLY OR

INDIRECTLY DETERMINING PRICE [S.3 (3)]:

Meaning: Not to allow resale below certain price or not to sell

above a certain price.

Includes any ag to-sell goods on condition that the prices to be

charged on the resale by the purchaser shall be the prices

stipulated by the seller unless it is clearly stated that prices lower

than those prices may be charged.

CASE LAW:

CALCUTTA GOODS TRANSPORT ASSOCIATION v. TRUCK

OPERATORS UNION –Association of lorry owners fixing

freight rates & not allowing members of association to charge

price lower than that fixed by association is RTP.

DGIR v. INFAR (INDIA) LTD –HELD-If the price indicated is

‘Maximum Retail Price’-it is obvious that the retailers are

authorised to sell the product at prices below the maximum. It is

not necessary to specifically state that price below the max retail

price can be charged.

REGISTRAR v. BENNETT COLEMAN & Co LTD –HELD-

Newspapers are exempt from s.39 & 40 (i.e., they can prescribe

minimum price). REASON-This is because speed is essence of

publishing a newspaper. Allowing retailer or vendor to bargain

the price would delay the process of reaching consumers fast.

Dr. KUMUDHA RATHNA

This will reduce circulation, which will lead to reduction in

quality & also increase in costs. This will not being long term

interest of public.

DIRECT PRICE MAINTENANCE PERMITTED: Permitted.

Meaning: Where the manufacturer sells goods through its own

retail shops & fixes prices to be charged in such shops (Eg: Bata,

Gwalior etc retail shops). Fixing price in such shops is not

prohibited.

F. REFUSAL TO DEAL : [S.4-Expln (d)]:

Includes-any agreement which restricts / likely to restrict -by any

method-the persons/classes of persons to whom goods are sold or

from whom goods are bought .

AGREEMENT NOT ANTI-COMPETITIVE: [S.3(5)(i)]:

AGREEMENTS PERMITED BY LAW:

Right of any person to-restrain (infringement of)-impose

reasonable conditions (for protecting any of his rights conferred

upon him under any of the following Acts)-not anti-competitive.

The Copyright Act, 1957.

The Patents Act, 1970.

The Trade & Merchandise Marks Act, 1958 OR The Trade

Marks Act, 1999.

The Geographical Indications Of Goods (Registration &

Protection) Act, 1999.

The Designs Act, 2000.

The Semi-conductor Integrated Circuits Layout-Design Act,

2000.

RIGHT FOR EXCLUSIVE EXPORT: [S.3(5)(ii)]:

No restriction on-the right of any person to export goods from

India-to the extent to which the ag relates exclusively to the-

Dr. KUMUDHA RATHNA

production/ supply/ control of goods/ distribution/ services-is not

anti-competitive.

FACTORS TO BE CONSIDERED WHILE DECIDING EFFECT OF

COMPETITION:

The Commission shall have due regard to the following factors-

while determining whether an ag has an appreciable adverse effect

on competition within India (u/s.3):-

Creation of barriers to new entrants in the market;

Driving existing competitors out of the market;

Foreclosure of competition by hindering entry into the market;

Accrual of benefits to consumers;

Improvements in production/distribution of goods or provision

of services;

Promotion of technical, scientific & economic development by

means of production/distribution of goods/services.

RULES FOR DETERMINING EFFECT OF COMPETITION:

A. THE RULE OF REASON:

Restrictions have to be considered on a case to case basis, i.e.,

basing on the facts of each case, the market & the existing

competition.

Because the ‘per se’ rule-if applied literally, would render even

normal trade as restraint of trade & as restraint of trade is the very

essence of every contract, American Courts developed this ‘rule of

reason.’

What determines the issue (in each case) is the actual or probable

restraint on competition in the relevant market.

The rule of reason-explained by US SC in BOARD OF TRADE OF

CITY OF CHICAGO v. US –“Every agreement concerning trade,

every regulation of trade, restrains. To bind, to restrain, is of their

Dr. KUMUDHA RATHNA

very essence. The true test of legality is whether the restraint

imposed is such as merely regulates & perhaps thereby promotes

competition or whether it is such as may suppress or even destroy

competition.”

This principle has been accepted by the SC of India also.

CASE: TATA ENGINEERING (TELCO) v. REGISTRAR OF

RESTRICTIVE TRADE AGREEMENT –Telco had entered into

agreements with its (Truck) dealers. Some of the clauses were-

o Dealer will not directly/indirectly sell the Tata trucks outside

the territory assigned to him (i.e.. geo limits);

o Dealer will maintain organisation/s for sale/service within his

territory-to the satisfaction of TELCO;

o Dealer will not sell, directly/indirectly-trucks of any other

manufacturer.

Telco argued as follows-

o To ensure equitable distribution of trucks so that the trucks

reach even remote places like Nagaland etc the first

restriction. If not, trucks will be concentrated in large metro-

centres only where demand is heavy.

o Sales tax rates vary from State to State. If there is no

territorial restriction, business will be concentrated in the

States where sales tax rate is lower.

o Prompt/efficient after sales service is vital for the truck user.

Dealer has to maintain at all times an adequate stock of

spares, good service facilities & trained mechanics. This

would cost Rs.5 Lakhs. Consumer interest demands that he

gets good after sales service.

Dr. KUMUDHA RATHNA

o After sales service needs specialisation which would not be

possible if the dealer deals in trucks of other makes.

Thus ultimately-consumers benefit if the clauses are included in

the agreement. HELD-SC accepted these contentions & declared

that restrictions imposed by TELCO do not amount to RTP.

OBITER DICTA-Ag which restrains/ binds-persons/ places/ prices

wouldn’t be per se, bad. The ? is whether the restraint is such as to

regulate & thereby promote competition OR suppresses

competition. Hence, applying rule of reason-matters to be

considered-(a)Facts particular to business; (b)Conditions before &

after restraint & (c)Probable effects of restraint.

B. THE PER SE RULE:

In U.S. in the initial stages of the admn of Sherman Act, 1980-there

was a blanket prohibition of all contracts/combinations in the form

of Trust in restraint of trade/commerce . These were regarded as

‘per se’ bad.

Thus-it is unnecessary to consider-whether the agreement or

clauses there in- limit/restrict competition .

This is based on-established experience of their nature to produce

anti-competitive effects. Hence it’s not necessary to prove anti-

competitive effect of these clauses.

CASE: NORTHERN PAC. R Co v. US –“There are certain

agreements or practices which because of their pernicious effect

on competition & lack of any redeeming virtue are conclusively

presumed to be unreasonable & therefore illegal without elaborate

inquiry as to the precise harm they have caused or the business

excuse for their use.”

In India-these 2 rules are applied as follows-ambivalently:

Dr. KUMUDHA RATHNA

a) S.3(3)(a) to (d) – Following clauses in ags presumed to have an

appreciable adverse effect on competition-

(a)Directly/indirectly determines purchase/sale prices;

(b)Limits/controls-production/supply/markets/tech

development/investment/services;

(c)Allocation of geographical area of market/type of

goods/services or # of customers in the market or any

similar way;

(d)directly/indirectly results in big-rigging or collusive

bidding.

b) S.3(4)(a) to (e) – will be examined by applying ‘Rule of Reason’-in

determining whether they cause or likely to cause an

appreciable adverse effect on competition in India.

(a)Tie-in-ag;

(b)Exclusive supply ag;

(c)Exclusive distribution ag;

(d)Refusal to deal;

(e)Resale price maintenance.

ABUSE OF DOMINANT POSITION (AOD):

Definitions:

DOMINANT POSITION [S.4(2) Expln (a)]:

Definition:

The dictionary meaning of the word ‘dominant’ is

‘overriding/influential’.

In simple terms, abuse of dominant position refers to the conduct

of an enterprise that enjoys a ‘dominant position’ (as defined by the

Act).

Dr. KUMUDHA RATHNA

In substance-dominant position-means the position of strength

enjoyed by an enterprise that enables it to act independently of

competitive forces prevailing in the relevant market. Such an

enterprise will be in a position to disregard market forces &

unilaterally impose trading conditions, fix prices etc.

The elements that constitute a dominant position are:-

A position of strength;

That position being enjoyed in a relevant market in India;

Such a position that gives the enterprise the power to

‘operate independently of competitive forces in the relevant

market’ (i.e., it can at will, disregard market forces/conditions

& impose its own trading conditions (Eg: prices at which the

enterprise is prepared to supply goods/services).

Explanation to S.4(2)(a) exempts such unfair/discriminatory trading

conditions/prices [& predatory pricing-S.4(2)(a)(i & ii)]-stating that-

when enterprises are engaged in bonafide competition &

readjusting their trading strategies to meet the terms of offers of

competitors in a market as it evolves, there is no abuse by any of

the enterprises. They are only responding to the market situation.

(Eg: If prices fall in the market, for reasons not the action of an

enterprise, a reduction in the price by that enterprise to match its

prices to the new prices cannot be termed unfair pricing or

predatory pricing).

Concept of DP as explained in HOFFMANN-LA ROCHE & CO. AG.

BASLE v. COMMISSION OF THE EUROPEAN COMMUNITIES IN

BRUSSELS:-“The concept of abuse is an objective concept

relating to the behaviour of an undertaking in a DP which is such

as to influence the structure of a market where, as a result of the

very presence of the undertaking in question, the degree of

Dr. KUMUDHA RATHNA

competition is weakened and which, through recourse to methods

different from those which condition normal competition in

products/services on the basis of the transactions of commercial

operations, has the effect of hindering the maintenance of the

degree of competition still existing in the market or the growth of

that competition.’

A position of 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. Affect its competitors/consumers/relevant market in its

favour.

Thus a dominant enterprise is one that has the power to disregard

market forces (Competitors, customers & others) & to take

unilateral decisions that would benefit itself & also, in the process,

cause harm to the process of free competition, injuring the

consumers by saddling them with higher prices, limited supplies

etc.

This capacity to engage in the market is called ‘Market Power’.

GROUP [S.5 Expln (b)]:

2 or more enterprises which, directly/indirectly are in a position to-

i. Exercise 26% or more of the voting rights in the other

enterprise OR

ii. Appoint more than 50% of the members of the Board of

Directors in the other enterprise OR

iii. Control the management/affairs of the other enterprise.

Dr. KUMUDHA RATHNA

CONSUMER [S.2(e)]:

Any person who-

i. Buys any goods for a consideration which has been paid or

promised or partly paid & partly promised or under any

system of deferred payment-includes any user of such

goods other than the person who buys such goods-when

such use is made with the approval of such person, whether

such purchase of goods is for resale or for any commercial

purpose or for personal use;

ii. Hires/avails of any services for a consideration which has

been paid or promised or.....and includes any beneficiary of

such services other than the person who hires or avails of

the with the approval of the first mentioned person whether

such hiring or availing of services is of any commercial

purpose or for personal use.

DOMINANT POSITION ITSELF ISN’T PROHIBITED:

Some acts are bonafide & not taken to hamper competition. S.4(2)

(a) exempts such unfair or discriminatory trading conditions/prices

or predatory pricing referred to in S.4(2)(a)(i) & (ii), setting out those

practices as an abuse of dominant position, from being considered

as an abuse of a dominant position, when they are adopted to meet

competition. REASON-When enterprises are engaged in bonafide

competition & readjusting their trading strategies to meet the terms

of offers of competitors in a market as it evolves , there is no abuse

of any of the enterprises. They are only responding to the market

situation.

Dr. KUMUDHA RATHNA

Eg: If prices fall in the market, for reasons not the action of an

enterprisea-a reduction in the price by that enterprise to match its

prices to the new prices cannot be termed unfair/predatory pricing.

FACTORS TO BE CONSIDERED WHILE DECIDING WHETHER AN

ENTERPRISE HAS A DOMINANT POSITION (DP):

The Commission shall (while inquiring whether an enterprise

enjoys a DP or not u/s.4) have due regard to all or any of the

following factors-

a) Market share of the enterprise;

b) Size & resources of the enterprise;

c) Size & resources of the competitors;

d) Economic power of the enterprise including commercial

advantage over competitors;

e) Vertical integration of the enterprises or sale or service

network of such enterprises;

f) Dependence of consumers on the enterprise;

g) Monopoly/dominant position whether acquired as a result of

any Statute or by virtue of being a Govt. Company or a public

sector undertaking or otherwise.

h) Entry barriers including barriers such as regulatory barriers,

financial risk, high capital cost of entry, marketing entry

barriers, technical entry barriers, economics of scale, high

cost of substitutable goods or service for consumers;

i) Countervailing buying power;

j) Market structure & size of market;

k) Social obligations & social costs;

Dr. KUMUDHA RATHNA

l) Relative advantage , by way of the contribution to the

economic development, by the enterprise enjoying a

dominant position having or likely to have appreciable

adverse effect on competition.

m)Any other factor which the Commission may consider

relevant for the enquiry.

WHAT IS ABUSE OF DOMINANT POSITION [S.4(2)]:

If an enterprise or group follows any of the following practices-it is

abuse-NO further PROOF of any damage/loss is required.

Unfair/Discretionary Conditions In Purchase/Sale [S.4(2)(a)]:

Unfair/discretionary conditions in purchase/sale of

goods/services OR

Price in purchase/sale (including predatory price) of

goods/services is abuse of dominant position.

Expln: Above practice isn’t abuse if adopted to meet

competition.

Limiting/Restricting Production/Development [S.4(2)(b)]:

Limiting/restricting-production of goods or provision of

services or market there for OR

Limiting/restricting-technical or scientific development

relating to goods or services to the prejudice of consumers, is

an abuse of DP.

Denial Of Market Access [S.4(2)(c)]:

(in any manner), is abuse of dominant position.

Dr. KUMUDHA RATHNA

Supplementary Obligations Unconnected To Main Contract: [S.4(2)

(d)]

Making conclusion (formation) of contract subject to acceptance by

other parties who are not connected to the nature/subject matter of

the contract-is abuse of dominant position.

Using Dominant Position To Enter Another Market: [S.4(2)(e)]

Using dominant position in one relevant market to enter into

another relevant market-is abuse of dominant position. (Eg:

Microsoft used its DP in disk operating system to dominate

browser market & ruined Netscape).

DIVISION OF ENTERPRISE ENJOYING DOMINANT POSITION: [S.28

– Incorporated into the Act in 2009]]

The Competition Commission may direct-division of an enterprise

enjoying dominant position to ensure that an enterprise enjoying

dominant position, doesn’t abuse it.

Such Order may provide for any/all of the below mentioned

matters:-

Transfer/vesting of pty/rights/liabilities/obligations;

Adjustment of contracts either by discharge or reduction of

liability/obligation or otherwise;

Creation/allotment/surrender/cancellation of any shares /

stocks or securities;

Formation/winding-up of an enterprise or the amendment of the

MoA or AoA or any other instrument regulation the business of

any enterprise;

Dr. KUMUDHA RATHNA

Extent to which, & the circumstances in which, provision of the

Order affecting an enterprise may be altered by the enterprise &

the registration thereof;

Any other matter which may be necessary to give effect to the

division of the enterprise.

No Compensation to Officer of Company [s.28(3)]:

No Officer of a company who ceases to hold office as such in

consequene of the division of an enterprise shall be entitled to

claim any compensation for such cesser. This is not withstanding

any other Law for the time being in force OR in any contract OR in

MoA OR AoA.

INQUIRY INTO AGREEMENTS-AS TO-ABUSE OF DOMINANT

POSITION:

Enquiry by CCI:

CCI may enquire-into-any alleged contravention of provisions of

Ss.3(1) &/or 4(1)-

Suo Motu OR

On receipt of any info (in the manner & with fee as determined

by regulations)-from any person/consumer/their association or

trade association OR

On a reference made to it by C.Govt/St.Govt/Statutory

authority [S.19(1)].

Director General has not the power to enquire on his own.

Procedure For Enquiry u/s.19: (S.26)

Dr. KUMUDHA RATHNA

o On receipt of info or suo motu-if CCI opines that there exists a-

prima facie case..

o Shall issue a direction (as per Regulation.18 of CCI (General)

Regulations, 2009) to the Director General (DG) to cause an

investigation to be made into the matter. This direction shall be

deemed to be commencement of an inquiry u/s.26.

o If on such receipt of info or suo motu-if CCI opines that there

exists no prima facie case-shall close the matter forthwith &

pass such Orders as it deems fit; Copy of the Order to be sent to

C.Govt/St.Govt/Statutory Authority/parties concerned (as per

Regulation.19 of CCI (General) Regulations, 2009).

o DG shall submit a report of his findings-within such period as

may be specified by the CCI..CCI may forward a copy of the

report to the parties concerned.

o If investigation was made on ref by C.Govt/St.Govt.Statutory

Authority-CCI shall forward a copy of report of DG to concerned

Authority.

Investigation & report by DG shall be as per Regulation.20 of CCI

(General) Regulations,2009.

o If report of DG states that there is no contravention of provisions

of Competition Act, the CCI shall invite objections from

C.Govt /St.Govt/Statutory Authority/Parties Concerned.

o If after consideration of objections/suggestions-CCI agrees with

the recommendations of the DG-it shall close the matter

forthwith & pass such Orders as it deems fit.

o Copies of Order shall by communicated to concerned to the

parties.

Dr. KUMUDHA RATHNA

o If CCI opines that further investigation is called for-May-

Direct DG for further investigation OR

Cause further enquiry to be made OR

Itself enquire into the contravention as per provisions of Act.

o Further enquiry by CCI: If DG-opines (report) that there is a

contravention of any provisions of the Act & the CCI also opines

similarly-CCI shall conduct such enquiry.

o Order by CCI after enquiry: May pass all or any of the following

Orders:-

Order to discontinue agreement/abuse & not re-enter such

agreement;

Penalty – S.27-upon each of the parties to the

agreement/abuse-as CCI deems fit-BUT shall not be more

than 10% of the average of the turnover for the immediately

preceding 3 financial yrs [S.27(b)]

If Cartel-penalty is equivalent to 3 times of the amount

of profits made out of such ag by cartel or 10% of the

avg of the turnover of the cartel in the immediately

preceding 3 financial yrs..whichever is higher- will be

imposed on each producer, seller, distributor, trader,

service provider included in the cartel

If penalty is proposed to be imposed on a person-

show cause notice duly signed by Secretary shall be

given asking for submission of explanation-in writing-

within 15 days.

CCI may direct that the agreement be modified to the extent &

in the manner as maybe specified by CCI [S.27 (d)].

Other Orders & payment of costs [S.27(e)].

Dr. KUMUDHA RATHNA

Order against any group company: If the enterprise which

violated the provisions of Competition Act (i.e., Ss.3-4) is a

member of the group & if other members of the group are also

responsible for the contravention, the CCI can pass Orders

against any member of the group [S.27-Proviso].

CASE LAW:

HOFFMANN-LA ROCHE & CO. AG, BASLE v.

COMMISSION OF THE EUROPEAN COMMUNITIES IN

BRUSSELS –Held (by The European Commission)-

Roche was in a dominant position within the common market,

on the markets for certain vitamins, abused that position by

concluding with 22 purchasers of these vitamins, agreements

which contained an obligation upon them, or the grant of

fidelity rebates offering them an incentive, to buy all or most

of their requirements of vitamins exclusively, or in preference

from Roche. Obiter dicta-Very large shares in the market in

themselves, save in exceptional circumstances, evidence of

the existence of a DP.

Exclusive purchase contracts & the fidelity rebates offered to

the purchasers amounted to abuse of this dominant position

because they distorted competition between producers in so

far as they deprived the customers of Roche of the

opportunity of choosing their suppliers.

The effect of the contract was to apply dissimilar conditions

to equivalent transactions, viz, Roche would be charging 2

diff prices for the same quantity of the same product,

depending upon whether the buyer was prepared to forego

purchasing from Roche’s competitors.

Dr. KUMUDHA RATHNA

Court Explained-‘An undertaking which has a very large market

share & holds it for some time, by means of the volume of

production & the scale of the supply which it stands for-without

those having much smaller market shares being able to meet

rapidly the demand from those who would like to break away from

the undertaking which has the largest market share-is by virtue of

that share in a position of strength which makes it an unavoidable

trading partner & which, already because of this secures for it, at

the very least during relatively long periods, that freedom of action

which is the special feature of a DP.’

Further the Court listed the relevant factors in determining the

existence of a DP-

Relationship between the market shares of the undertaking &

its competitors;

Technological lead of an undertaking over its competitors;

Existence of a highly developed sales network;

Absence of potential competition.

COMPAGNIE MARITIME BELGE TRANSPORTS SA &

OTHERS v. COMMISSION OF THE EUROPEAN

COMMUNITIES –The members of Associated Central West

Africa Lines (CEWAL) & 2 other shipping conferences

brought this action contesting before the Court the decision

of the Commission & the Court of 1st Instance. The

Commission had decided that all the shipping conferences

had violated Article 81(1) of the EEC (European Economic

Community) Treaty, by entering into non-competition

agreements with 1 another, imposing on themselves a

restraint to the effect that each member would refrain from

Dr. KUMUDHA RATHNA

operating as an independent shipping company (outsider) in

the area of activity of the others. HELD –This was abuse of

their collective dominant position by the members of CEWAL-

with the intention of eliminating the principal independent

competitor-by

o Participating in the implementation of the co-operation ag

with Ogefrem;

o Modifying its freight rates by departing from the tariff in

force in order to offer rates.

It was argued that in order to show that DP was shared by more

than 1 undertaking a close economic link bet them had to be

established.

Court Ruled-

DP may be held by 2 or more economic entities legally

independent of each other, provided that from an economic

point of view they present themselves or act together on a

particular market as a collective entity.

It should be ascertained whether the undertakings constitute

a collective entity vis-a-vis their competitors / trading

partners & consumers for a particular market & if that

collective entity actually holds a DP & whether its conduct

constitutes abuse.

Court held that the co-operation agreement with Ogefrem

amounted to abuse of DP.

EUROPEMBALLAGE CORPN & CONTINENTAL CAN

COMPANY INC v. COMMISSION OF THE EUROPEAN

COMMUNITIES –Continental was already enjoying a DP

Dr. KUMUDHA RATHNA

through the control of 1 company, in a substantial part of the

common market for certain types of containers. HELD-Abuse of

DP by the acquisition by Continental, through its subsidiary,

Europemballage, by approximately 80% of the shares &

convertible debentures of Thomassen & Drijver-Verbliva-this

practically eliminated in a substantial part of the common

market. Though the subsidiary had a separate Legal personality,

its conduct could be attributed to the parent company,

particularly when in essentials it follows the directives of the

parent company.

TETRA PAK INTERNATIONAL SA v. COMMISSION OF

THE EUROPEAN COMMUNITIES –the Tetra Pak group

specialized in equipment for the packaging of liquid or semi-

liquid food products in cartons (covering both aseptic & non-

aseptic packaging sectors).Tetra Pak held 90-95% of the market

in the aseptic sector & 50-55% in the non-aseptic sector. The

complainant Elopak, held 27%. The complaint by Elopak Italia

before EC was that Tetra Pak imposed unfair conditions on the

supply of machines for filling cartons & that the sale of cartons

& equipment, in certain cases were at predatory prices. HELD –

Contracts for the sale/lease of Tetra Pak equipment for

manufacturing cartons contained several clauses found to be

anti-competitive. Main such clauses were:-

o Buyers of Tetra Pak equipment were prohibited from

changing the configuration of the equipment bought.

o They were also not allowed to add any part or accessory to

that equipment.

o Tetra Pak reserved to itself the exclusive rights to inspect

the equipment, maintain & repair it & to supply spare parts.

Dr. KUMUDHA RATHNA

o The IPR in relation to any improvement made to the

product by the buyer was to be assigned to Tetra Pak.

o The purchaser from Tetra Pak was to ensure that his buyer

assumed his obligations to Tetra Pak. Breach of this

condition entailed a penalty.

Also, given the almost complete domination of the aseptic

markets by Tetra Pak, thanks to this position in this market, it could

concentrate its efforts on the non-aseptic market by acting

independently of the other economic operators, and placed it in a

situation comparable to that of holding a DP on the markets in

question, as a whole.

COMBINATIONS:

Take-over, amalgamation, mergers etc are some of the means of

increasing market dominance.

Competition Act intends to exercise control over such mergers &

amalgamations, with a view to ensure that such amalgamations &

mergers are not anti-competitive.

COMBINATION-MEANING:

The acquisition of 1 or more enterprises by 1 or more persons OR

mergers/amalgamation of enterprises shall be treated as

combinations..in the following instances:-

a) Acquisition of large enterprises: An acquisition where the

parties (acquirer & enterprise) whose control/shares/voting

rights/assets have been/being acquired-jointly have

Dr. KUMUDHA RATHNA

i. In India-assets of value of more than Rs.1K crores / turnover

more than Rs.3K crores OR

ii. In & outside India, in aggregate, assets of the value of more

than $500 milion-including at least Rs,.500 crores in India /

turn-over more than $1,500 million-including at least Rs.1,500

crores in India

Assets/turn-over exceeding specified limits: If after acquisition, the

joint assets/turn-over increases the aforesaid limits, it will be a

combination.

If the acquirer already had the assets/turnover-any further

acquisition will be combination.

Type of Combination Assets/turnover in India Assets/turnover in or

outside India

Any Acquisition-where-

acquirer+enterprise jointly

have - [S.5(a)(i)]

Joint assests-over-Rs.1K

Crores/turnover over

Rs.3K Crores

Joint assets-over $500

Million-including at least

Rs.500 Crores in India OR

turnover more than $1,500

Million-including at least

Rs.1,500 Crores in India.

Acquisition by group of

enterprise – [S.5(a)(ii)]

Assets over Rs.4K

Crores / turnover over

Rs.12K Crores

Joint assets-over $2

Billion-including at least

500 Crores in India /

turnover more than $6

Billion-including at least

Rs.1,500 crores in India.

Acquisition by a person of

an enterprise-when such

person is having

Joint assets over Rs.1K

Crores/turnover over

Rs.3K Crores.

Joint assets over $500

Million / turnover $1,500

Million.

Dr. KUMUDHA RATHNA

direct/indirect control over

another enterprise

engaged in production /

distribution / trading of

similar / identical /

substitutable

goods/service) – [S.5(b)(i)]

Acquisition by a group with

similar / identical /

substitutable goods /

services – [S.5(b)(ii)]

Group assets over Rs.4K

Crores / turnover over

Rs.12K Crores

Group assets over $2

Billion /turnover over $6

Billion.

Merger / amalgamation of

2 enterprises (goods /

services may be similar /

dissimilar) – [S.5(c)(i)]

Combined assets over

Rs.1K Crores / turnover

over Rs.3K Crores.

Combined Assets over

$500 Million / turnover

over $1,500 Million

Merger / amalgamation in

a group (goods / services

maybe similar/dissimilar)

Combined assets over

Rs.4K Crores / turnover

over Rs.12K Crores.

Combined assets over $2

Billion / turnover over $6

Billion.

CALCULATION of VALUE OF ASSETS [S.5(c) Explanation]:

The value of assets shall be determined by taking the book value of

the assets as shown, in the audited boks of a/c of the enterprise, in

the financial year immediately preceding the financial year in which

the date of proposed merger falls, as reducd by any depreciation, &

the value of assets shall include the brand value, value of Good-will

or value of rights, patent, permitted use, collective mark, registered

proprietor, registered trade mark, registered user, homonymous

geographical indication, geographical indications, design or layout-

design or similar oher commercial rights, if any referred to in S.3

(5).

Dr. KUMUDHA RATHNA

EFFECT OF INFLATION ON VALUE OF ASSETS/TURNOVER [S.20

(3)]:

The Central Govt. shall, on the expiry of every 2 years-in

consultation with the CCI-by notification-enhance/reduce-on the

basis of the wholesale price index/fluctuations in exchange rate of

rupees/foreign currencies-the value of assets or the value of

turnover, for the purposes of that section.

REGULATION OVER COMBINATIONS [S.6 (1)]:

No person/enterprise shall enter into a combination which causes

or is likely to cause an appreciable adverse effect on competition

within the relevant market in India & such a combination shall be

void. (S.6 came into effect on May,2009).

PROVISON DOESN’T APPLY TO PFI/FII [S.6 (4)]:

The provisions of S.6 do not apply to share subscription or

fianancing facility or any acquisition, by a public financial

institution, FII, bank or venture capital fund, pursuant to any

covenant of a loan agreement or investment agreement.

Public Financial Institution: means such an institution specified

under s.4A of the Companies Act, 1956 (Includes a State Financial,

Industrial or Investment Corpn - S.2(o).

As per s.4A of the Companies Act-all bodies (eg. ICICI, IFCI, IDBI,

LIC, UTI) are Public Financial Institutions. Also includes

Securitisation Company & Asset Reconstruction Company

registered with RBI under Securitisation Act, 2002.

MANDATORY NOTICE TO COMMISSION:

Dr. KUMUDHA RATHNA

Any person/enterprise-who/which proposes to enter into a

combination-shall give notice to the Commission-in the

(prescribed) form & fee-disclosing details of the proposed

combination-within 30 days of –

o Approval of the proposal relating to merger/amalgamation

(as per s.5(c) by Board of Directors of the enterprise

concerned with such merger/amalgamation OR

o Execution of any agreement/document for acquisition (as

per s.5(a) or acquiring of control referred to in s.5(b).

COOLING PERIOD OF 210 DAYS: after the notice. Combination

can’t become effective during the cooling period.

PENALTY FOR NOT GIVING NOTICE u/s.6 (2) [S.43A]:

If any person/enterprise fails to give notice to the Commission u/s.6

(2) of the Competition Act-the Commission shall impose on such

person/enterprise-a penalty which may extend to 1% of the total

turnover or the assets, whichever in higher, of the combination.

Show cause Notice [Regulation 48 of Competition Commission of

India (General) Regulations, 2009]: If penalty is proposed to be

imposed by Commission on a person-showcause notice duly

signed by Secretary shall be given-asking for submitting

explanation in writing within 15 days. Penalty shall be imposed only

after giving opportunity of personal hearing to the person.

PROCEDURE AT COMMISSION AFTER RECEIVING NOTICE:

On receipt of notice [u/s.6(2)]-examine the notice & form prima facie

opinion [as provided in s.29(1)]-proceed as per provisions of s.29-

31.

Dr. KUMUDHA RATHNA

S.29(1): CCI has to form a prima facie opinion-whether a

combination is likely to cause/has caused-an appreciable adverse

effect on competition within the relevant market in India. If yes-

issue a notice to the parties, to show cause.

Combination not effective for 210 days from date of notice, or till

CCI issues order u/s.31:

The combination shal not come into effect until 210 days or order

of Commission u/s.31is recd, whichever is earlier.

U/s.31, Commission can either-

Approve the combination or

Order that the combination shall not be effective or

Propose modifications in the combination.

FACTORS TO BE CONSIDERED [by CCI] IN DETERMINING

ADVERSE EFFECT OF COMBINATION: [S.20 (4)]

a) Actual/potential level of competition thru imports in the market.

b) Extent of barriers to entry to the market.

c) Level of combination in the market.

d) Degree of countervailing power in the market.

e) Likelihood that the combination would result in the parties to the

combination being able to significantly & sustainably increase

prices/profit margins.

f) Extent of effective competition likely to sustain in a market.

g) Extent to which substitutes are available or likely to be available

in the market.

h) Market share, in the relevant market, of the persons/enterprises

in a combination, individually/combination.

i) Likelihood that the combination would result in the removal of a

vigorous & effective competitor/s in the market.

Dr. KUMUDHA RATHNA

j) Nature & extent of verticals integration in the market.

k) Possibility of a failing business.

l) Nature & extent of innovation.

m)Relative advantage, by way of the contribution to the economic

development, by any combination having or likely to have

appreciable adverse effect on competition.

n) Whether the benefits of the combination outweigh the adverse

impact of the combination, if any.

ENQUIRY INTO COMBINATION BY CCI & ORDER:

CCI can enquire-

Suo motto

On receipt of notice.

Enquiry Into Combination By Commission-On Its Own:

Upon its own knowledge OR

Info relating to acquisition referred to it u/s.5(a) OR

Acquiring of control referred to in s.5(b) OR

Merger/amalgamation referred to in s.5(c)

S.20(1) Proviso: Commission shall not initiate any inquiry under

this sub-section after the expiry of 1 yr from the date on which

such combination has taken effect.

Enquiry On Combination-On Receiving Notice:

S.20(2): On receipt of notice u/s.6(2)-Inquire as to whether a

combination referred to in that notice/reference has caused or is

likely to cause an appreciable adverse effect on competition in

India. [Note: 1yr period mentioned in S.20(1) is inapplicable to

S.20(2)]

[CONFLICT of Statutory provisions:

S.20(2): Inquiry mandatory.

Dr. KUMUDHA RATHNA

S.6(3) read with S.29(1): Commission can drop proceedings-if on

prima facie opinion-it concludes that competition in India will not

be adversely affected.]

PROCEDURE FOR INVESTIGATION OF COMBINATIONS:

S.29(1): Show-cause for investigation: If Commission prima facie

opines that a combination is likely/causes ...India-it shall issue

notice to the parties to show-cause-as to why investigation in of

such combination should not be conducted-to respond within 30

days of receipt of notice.

S.29(1A): After receipt of response from parties:

Commission may call for a report from Director General (DG)-to be

submitted within 60 days (Commission-may extend time for a

further 60 days).

S.6(2): Inquiry into disclosures:

If any person/enterprise-gives notice under this section-

Commission shall examine such notice-form prima facie opinion

[as per s.29(1)] & proceed [as per s.30].

S.29(2): Publish information for public knowledge:

If Commission-prima facie opines that the combination is or

likely..appreciable adverse effect...India-shall (within 7 working

days from date of receipt of the response of the parties to the

combination OR report of DG u/s.29(1A) whichever is later-direct

the parties to-publish details of the combination (within 10

working days of such direction, in such manner as it thinks

appropriate)-Reason-for bringing the combination to the

knowledge/info of the public & persons affected or likely to be

affected by such combination.

S.29(3): Invite Objections:

Dr. KUMUDHA RATHNA

The Commission may invite any person/member of the pubic

(affected or likely to be affected by the combinations)-within 15

working days from date on which the details of the combination

were published.

S.29(4): Call for Additional Details:

The Commission may-within 15 working days from the expiry of

the period specified in S.29(3)-call for such additional/other info as

it deems fit-from the parties to the combination.

S.29(5): The additional info shall be furnished by the parties-within

15 days from the expiry of the period specified in s.29(4).

S.29(6): Proceed to deal with the case: After receipt of all info &

within 45 working days from expiry of the period specified in

s.29(5)-Commission shall proceed to deal with the case as per

s.31.

Order of Commission after Enquiry:

Commission may pass any of the following Orders:

S.31(1): Approve the combination.

S.31(2): Direct that the combination shall not take effect.

S.31(3): If Commission opines that the combination has/is likely to

have appreciable adverse effect on competition-BUT-that such

adverse effect can be eliminated by modification-it may propose

appropriate modification to the combination.

S.31(4): The parties (who accept the modification) shall carry it out

within the time specified by the Commission.

S.31(5): If the parties to the combination, who have accepted the

modification proposed- do not carry them out within time

specified by the Commission-shall be deemed to have an

appreciable adverse effect..& Commission shall deal with such

combination as per the provisions of the Act.

Dr. KUMUDHA RATHNA

S.31(6): If the parties to the combination do not accept the

modifications proposed by the Commission-they may submit an

amendment to the modifications proposed by the Commission-to

the Commission-within 30 working days of modification proposed

by the Commission.

S.31(7): If the Commission agrees with the amendment proposed

by the parties-it shall-by Order-approve the combination.

S.31(8): If the Commission doesn’t accept the amendments

proposed by the parties-it shall I allow a further 30 working days-

within which time they shall accept the modifications proposed by

the Commission.

S.31(9): If the parties do not accept the modifications proposed by

the Commission (within period specified in sub.s.6/8) the

combination shall be deemed to have an appreciable adverse

effect on competition & be dealt with according to the provisions

of this Act.

S.31(10): Further Orders by Commission:

Where the Commission

has declared that the combination shall not take effect

[S.31(2)] OR

Combination deemed to be having appreciable adverse

effect on competition [S.31(9)]

Without prejudice to any penalty which may be imposed or any

other prosecution-Commission may Order as follows-

a) The acquisition referred to S.5(a) OR

b) The acquiring of control referred to in S.5(b) OR

c) The merger/amalgamation referred to in S.5(c)

Shall not be given effect to.

Dr. KUMUDHA RATHNA

Also, the Commission may, if it thinks appropriate-frame a

scheme to implement its Order-under this section.

S.31(11): Deemed Approval: If Commission doesn’t-within 210

days from date of notice to Competition Commission-deemed to

have been approved by the Commission.

Expln: Exclusion in computing 210 days: The 30 days specified in

sub.s.6 & further 30 days specified in sub.s.8 shall be excluded.

S.31(12): If any extension of time is sought by the parties to the

combination-the period shall be computed after deducting the

extended period.

S.31 (13): Where the Commission has ordered a combination to be

void-any acquisition/merger/amalgamation-shall be dealt with by

authorities under any other Law for the time being in force as if

such acq/merger/amalgamation-had not taken place.

S.31 (14): The provisions of Chapter shall not affect-proceedings

initiated or which may be initiated under any other Law for the

time being in force.

S.32: Acts taking place outside India but having an effect on

competition in India:

The Commission shall, not withstanding that-

a) An ag referred to in S.3 has been entered into outside India OR

b) Any party to such ag is outside India OR

c) Any enterprise abusing the dominant position is outside India

OR

d) A combination has taken place outside India OR

e) Any party to combination is outside India OR

f) Any other matter/practice/action arising out of such ag or

dominant position or combination is outside India

Dr. KUMUDHA RATHNA

Have power to inquire into such ag or abuse of dominant position

or combination-if such ag/dominant position/combination-has or

is likely to have-an appreciable adverse effect on competition in

the relevant market in India.

S.33: empowers the Commission to issue interim Orders

restraining any party from carrying on such act until the conclusion

of such inquiry or until further Orders [even sans giving notice to

such party, where it deems it necessary].

S.35: Appearance before Commission:

A person/enterprise/DG may

Appear in person OR

Authorise – 1 or more

o Chartered accountants

o Company secretaries

o Cost accountants

o Legal practitioners

o Any of his/its Officers

to present his/its case before the Commission.

S.36: Power of Commission to regulate its own procedure:

1) In discharging its functions-Commission shall be guided by-

principles of natural Justice-subject to

a. Provisions of this Act

b. Rules framed by Central Govt.

Commission shall have power to regulate its own procedure.

2) Commission-for the purpose of discharging its functions-has

vested in itself the same powers as that of a Civil Court under

C.P.C.-namely-

a. Summoning/enforcing attendance of any person

Dr. KUMUDHA RATHNA

b. Examine him on oath

c. Require discovery & production of documents

d. Receive evidence on affidavit

e. Issue commissions for examination of witnesses/docs

f. Requisition any pubic record/doc or copy thereof from any

office (subject to ss.123 & 124 of Indian Evidence Act,

1872).

3) Call upon such experts, from any discipline as it deems

necessary-to assist the Commission in the conduct of any

inquiry by it.

4) The Commission may direct any person-to produce/furnish-

before-DG/Secretary/any Officer authorised by it-

a. Such books/documents in custody/control of such person

b. Trade or any info (in relation to the trade carried on by

such person) as may be in his possession.

S.38: Rectification of Orders: The Commission may-suo moto or on

notice given by any party to an Order-rectify any mistake apparent

from the record.

Expln: The Commission shall not-in rectifying any mistake-amend a

substantive part of its Order.

S.39: Execution of Orders of Commission imposing penalty:

1) If a person on whom monetary penalty has been imposed by the

Commission-fails to pay it-the Commission may proceed against

the person to recover the penalty in such manner as may be

specified by the regulations.

2) If the Commission opines that recovery of penalty is to be as per

provisions of the Income-Tax Act, 1961-it may make a reference

to this effect to the concerned IT authority-for recovery.

Dr. KUMUDHA RATHNA

3) Where a reference has been made by the Commission-under

sub-section.2-the person on whom the penalty has been

imposed shall be deemed to be an assessee in default under IT

Act.

DUTIES OF THE DIRECTOR GENERAL:

S.41: DG shall when directed by the Commission-assist the

Commission in-investigating into any contravention of the

provisions of this Act or any rules/regulations made there under.

S.42: Contravention of the Orders of the Commission:

The Commission may cause an inquiry to be made into

compliance of its Orders/directions.

If any person (sans sufficient cause) fails to comply with the

Orders...he shall be punishable with-fine (max-Rs.1 lakh for each

day of non-compliance subject to a max of Rs.10 crores)-as

determined by the Commission.

If any person doesn’t comply with Orders/directions or fails to

pay the above said fine-Imprisonment for a max of 3 yrs &/or fine

(max-Rs.25 crores)-as Chief Metropolitan Magistrate, Delhi,

deems fit.

But, Chief Metro Magistrate, Delhi-shall take cognizance of any

offence under this section-ONLY on a complaint filed by the

Commission.

S.42A: (inserted by 2007 amendment Act): Compensation in case of

contravention of Orders of Commission:

Any person-may make an application to the Appellate Tribunal for

an Order for the recovery of-compensation for any loss/damage-

suffered as a result of-

An enterprise violating directions issued by the Commission; or

Dr. KUMUDHA RATHNA

Contravening (sans reasons) any decision/Order of Commission

or

Contravening (sans reasons) any conditions/restrictions subject

to which any approval/sanction/direction/exemption in relation to

any matter has been granted under this Act or

Delay in carrying out such Orders/Directions of the Commission.

S.43: Penalty for failure to comply with directions of Commission

and Director General:

If any person fails to comply (sans reasonable cause)-with a

Direction given by –

The Commission u/s.36 (2 & 4) or

The DG while exercising powers referred to in s.41 (2)

Such person shall be punishable with fine (max-Rs.1 lakh per day

of continuing default with a total max of Rs.1 crore)-as determined

by the Commission.

S.43A: Power to impose penalty for non-furnishing of info on

combinations:

If any person/enterprise-fails to give notice to the Commission

[u/s.6 (2)]-Commission shall impose penalty-may extend to 1% of

the total turnover or the assets (whichever is higher) of such

combination.

S.44: Penalty for making false statement/omission to furnish

material information:

If any party to a combination-

Makes a statement which is false-of a material particular-

knowingly OR

Omits to state any material particular-knowing it to be

material

Dr. KUMUDHA RATHNA

Such person shall be liable to a penalty-Rs.50 lakhs (minimum) &

max of Rs.1 crore (as determined by the Commission.

S.45: Penalty for offences in relation to furnishing of info:

[Without prejudice to S.44] If any person-furnishes or reqd to

furnish any info/particulars/docs-

Makes any statement/furnishes any doc-which he knows or

has reason to believe to be false (relating to any material

particular) OR

Omits to state any material fact-knowing it to be material OR

Wilfully alters/suppresses/destroys-any doc-which is reqd to

be furnished

Punishable with fine (max) of Rs.1 crore-by the Commission.

S.46: Power of Commission to impose lesser punishment:

If the Commission is satisfied that-any Producer/seller/distributor

etc-included in a cartel (which is alleged to have violated S.3)-has

made a full & true disclosure-in respect of the alleged violations-

may impose of such person-a lesser penalty-as it deems fit.

S.47: Crediting sums realised by way of penalties-to-Consolidated

Fund of India:

All sums realised by way of penalties under this Act shall be

credited to this fund.

S.49: Competition Advocacy:

The Central Govt/St. Govt. may-in formulating a policy on

competition (or any other matter)-make a reference to the

Commission-for its opinion-on possible effect of such policy on

competition-AND-on receipt of such reference-the Commission

shall-within 60 days of making the reference-give its opinion-to the

Central/St. Govt.

The opinion of the Commission-shall not be binding upon the Govt.

Dr. KUMUDHA RATHNA

The Commission shall take suitable measures for the promotion of

competition advocacy-creating awareness & imparting training

about competition issues.