Blog Details

Author - Devanshu Gupta, Advocate & Consultant (Competition Law & M&A)

Indian Competition Law is progressive legislation that prohibits business activities that decreases or restricts free and fair competition in the Indian market. The Competition Act, 2002 prohibits trade practices that cause or likely to cause an appreciable adverse effect on the competition in the market. For this purpose, the Competition Commission of India (hereinafter referred to as CCI) was established in 2009 as an expert body having the powers to curb and penalize such anti-competitive practices.

Since its inception, the CCI has penalized many big companies in the market, to name a few – Google, DLF, Cement companies (ACC, Ambuja, Binani, Lafarge, UltraTech, etc), JCB, Car Manufacturers (Maruti Suzuki, M&M, Tata Motors, Toyota, Honda, Volkswagen, Fiat, Ford, Mercedes, Skoda, etc), Coal India Ltd, Druggist & Pharmaceuticals Associations, Lupin, etc. 

The Indian Competition Act seeks to maintain free and fair competition in the Indian market and prohibits 3 types of practices by any enterprise. These include –

1. FORM ANY ANTI-COMPETITIVE AGREEMENTS

2. ABUSE THE DOMINANCE IN THE MARKET

3. APPROVALS FOR CERTAIN MERGERS AND ACQUISITIONS (COMBINATIONS)

Let’s start by getting a brief understanding of all these prohibitions.

1. FORM ANY ANTI-COMPETITIVE AGREEMENTS

According to section 3 of the Competition Act, 2002, any enterprises, persons or associations of enterprises/persons are restricted from entering into an agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services that cause or are likely to cause an appreciable adverse effect on competition in India. Such agreements would consequently be considered void if such an agreement is proved to have caused or is likely to harm market competition.

Such agreements may be classified into two categories - Horizontal agreements & Vertical agreements – 

·         Horizontal agreement - agreement amongst companies or persons operating in the same line/level/stage of production chain or same markets in respect of production, supply, distribution, storage, sale or price of, or trade in goods or provision of services.

The Act has enlisted few agreements that would be presumed be to anti-competitive, such agreements may include any agreement that - 

o directly or indirectly determines sale/purchase prices

o limit or control production, supply, markets, technical development, investment or provision of services

o directly or indirectly result in bid-rigging/collusive bidding

o share the market/source of production/provision of services by way of allocation of the geographical area of market or type of goods or services, or the number of customers or any other similar way

E.g. An agreement between two companies selling/manufacturing cars/toys etc.

·         Vertical agreements - agreement amongst companies or persons operating at the different line/level/stage of production chain or in different markets in respect of production, supply, distribution, storage, sale or price of, or trade in goods or provision of services.

The Act has enlisted few agreements that would not be presumed to be anti-competitive, however, if established to have harmed competition, it would be subject to penalization under the Competition Act, 2002. Such agreements may include the following agreements - 

o tie-in arrangement

o exclusive supply agreement

o exclusive distribution agreement

o refusal to deal

o resale price maintenance

E.g. an agreement between two companies, where one is manufacturing a car and the other is selling the car in the market or supplying spare parts to the car manufacturer.

2. ABUSE THE DOMINANCE IN THE MARKET

Section 4 of the Competition Act, 2002, prohibits any enterprise or group from abusing its dominant position in the market. The dominant position is defined as the position of strength enjoyed by any company or group in a market that enables it to operate independently of all the competitive forces prevailing in the market or affect its competitors or consumers or the market in its favor. 

When a dominant enterprise in the relevant market controls an infrastructure/facility that is necessary for accessing the market and is neither easily reproducible at a reasonable cost in the short term nor interchangeable with other products/ services, then the dominant enterprise may not without sound justification refuse to share it with its competitors at a reasonable cost. This has come to be known as the Doctrine of Essential Facility.

Hence, any dominant company is penalized if it is proved that the company engaged in conduct that was intended to eliminate a competitor or prevent the entry of any new competitors in the market. 

There shall be an abuse of dominant position if -

1. an enterprise indulges into directly/indirectly imposing unfair/discriminatory conditions in the purchase/sale of goods or services

2. setting prices in the purchase/sale of goods or services (including predatory pricing)

3. limiting/restricting the production of goods or provision of services

4. limiting/restricting technical or scientific development relating to goods or services to the prejudice of consumers;

5. indulging in practices resulting in the denial of market access in any manner to any company/enterprise; 

6. concluding contracts subject to acceptance by other parties of supplementary obligations which have no connection with the subject of such contracts by their nature or according to commercial usage;

7. uses its dominant position in one market to enter into, or protect its other market

E.g. CCI penalized Google for misusing its dominant position in India by making it harder for phone makers to choose alternative versions of Android.

3. APPROVALS FOR CERTAIN MERGERS AND ACQUISITIONS (COMBINATIONS)

Any acquisitions, mergers or amalgamations (commonly called combinations under the competition Act 2002) that exceeds the threshold limit, in terms of assets or turnover in India and abroad, are to be reported and scrutinized by the CCI. The limits specified in the Act are as follows -

The Ministry of Corporate Affairs in 2016 has expected certain acquisitions, mergers, and amalgamations (combinations under competition act 2002) for five years until 2021. Through this, Any enterprise whose control, shares, voting rights or assets are being acquired, that has either assets of no more than INR 3,500 million (approx. USD 49 million) in India or turnover of INR 10,000 million (approx. USD 142 million) in India is exempted from being notified to the CCI (commonly called de minimis exemption). 

Some more such transactions, like acquiring less than 25% of shares in the same group companies, etc, are exempted from taking CCI approvals. The CCI has recently allowed some transactions to get deemed approval from the CCI in case they do not have a horizontal, vertical or complimentary overlap.

REMARKS

Competition is essential for economic growth and ensures equal level playing fields to all enterprises. It provides security to weaker organizations and consumers against unfair trade practices by prohibiting large enterprises. Therefore, every company shall keep a competition law advisor for its compliance under the Competition Act, 2002, as well as, report any such anti-competitive practices adopted by its rivals or any company in the market to the CCI. Recently, many amendments to the Competition Act are under consideration and the Act would soon be revised to provide better investigative and other powers to the CCI.

Competition law infringement causes reputational and economic losses (penalty of up to 10% of the average turnover of the last preceding 3 years) to any enterprise established to have infringed the provisions of the Act. Hence, any company needs to keep handy work on completion laws to seek remedy wherever required. Remedy in the form of timely disclosure of information to CCI in case of being investigated to seek either 100% or significant waiver of penalty through the lesser penalty regulations.