In the wake of economic liberalization and reforms introduced by India since 1991 and in conformity with the commitments made at the WTO , India decided to revamp its then existing Competition (or Antitrust) laws and regulations ,namely the Monopolies and Restrictive Trade Practices Act, 1969 ,which was primarily designed to restrict and curb monopolies in the market. It mainly targeted private enterprises and frowned upon their growth beyond a certain level. As the first step towards modernization, a new Competition Act, 2002 was enacted (“Competition Act”) which received Presidential assent on 13th January, 2003.
The objectives of the Competition Act are to establish a Commission to “prevent anti-competitive practices”, to “promote and sustain competition in markets”, to “protect the interests of the consumers” and to “ensure freedom of trade”.
The Competition Act is a state of art and modern statute in sync with similar legislations in other jurisdictions in the world. Like other similar statutes, the Competition Act covers the prohibition of anti-competitive agreements and exercise of market power or abuse of dominant position and regulation of combinations i.e. mergers and acquisitions.
The Government of India notified selected portions of the Competition Act for enforcement relating to prohibition of anti-competitive agreements (section 3) and abuse of dominant position (section 4) by enterprises with effect from 20th May, 2009. The provisions relating to regulation of combinations, that is, mergers and acquisitions (section 6) were notified much later on from 01st June, 2011. For regulation of combinations, India has decided to follow a prior mandatory notification and suspensory regime.
The objectives of the Competition Act are to be achieved by establishment of the Competition Commission of India (‘Commission/ CCI”) which has been established by the Central Government with effect from 14th October 2003. The CCI is mandated to achieve the objectives through a process of inquiry, which is followed by the process of investigation i.e. collection of evidence, carried out by the office of Director General (DG).
Overview of Competition Act
The Competition Act, 2002 (‘the Competition Act’) in its preamble, seeks to achieve the following objectives:
- Prevent practices having adverse effect on competition.
- Promote and sustain competition in the markets.
- Protect the interests of consumers.
- Ensure freedom of trade carried on by other participants in markets in India
The Competition Act seeks to control the market behavior of enterprises, in any legal form, individually or collectively as groups, through enforcement of the following main provisions –
- Prohibition of Anti-competitive agreements, including cartels ( Section 3)
- Prohibition of Abuse of dominant position (Section 4)
- Regulation of Combinations i.e. mergers & acquisitions (Section 6)
- Competition advocacy (Section 49)
Role of Economics in Competition Laws
Competition law is essentially concerned with the study of markets, the objective being to ensure that there is competition between the suppliers in any market and that this competition benefits consumers. At the day-to-day level, applying competition law involves identifying markets and assessing whether or not competition is working well in those markets. It involves assessing how the actions of firms will affect competition and consumers. These are essentially economic issues. Understanding economics helps to understand how markets operate, how firms will behave in particular markets, and whether their behaviors will result in competition that benefits consumers. Economics is also being recognized as an essential tool to access market power and to determine the boundaries of the market in which such market power is to be analysed.
Overlap and conflict with sector – specific laws
CCI as the main fair market regulator is mandated to look into the macro picture of competition related issues across all the sectors in the economy, particularly, in the unregulated sectors of the India markets. In the nearly eight years of its functioning, CCI has ordered penalties totaling about INR 14,000 Crores. CCI is the youngest and the only cross sector regulator in India. With a mandate to ensure free play in markets, CCI has cracked down on cartels including cases of bid rigging in public procurements, abuse of dominant position/market power and monopolistic mergers and acquisitions by large private enterprises and state owned behemoths.
For the regulated sectors, the existence of competition related provisions in the statutes governing the specific regulators such as Telecom Regulatory Authority of India (“TRAI”), Central Electricity Regulatory Commission (“CERC”) and Petroleum and Natural Gas Regulatory Board (“PNGRB”) etc. are bound to raise and have raised concerns of overlapping jurisdiction which have laid to filing of Writ Petitions in High Courts. However, a consensus of various High Court seems to be emerging by decisions taken so far that CCI is the expert regulator to deal with competition issues. Moreover, there are provisions in the Competition Act which empower both CCI (to refer issues requiring sector specific expertise to sector regulators for their opinion before deciding a matter before them) and to sector regulators (to refer competition issues for opinion to CCI in ongoing litigation matters).
Anti- competitive agreements (Section 3)
In the course of business, firms in India, like anywhere else in the World, enter into agreements, some of which may have the potential to restrict competition among them or in the market. Such agreements are called anti-competitive agreements. As per the Act, an ‘agreement’ includes any arrangement, understanding or concerted action entered into between parties. Such ‘agreement’ need not be in writing or formal or intended to be enforceable by law. Competition law makes a distinction between “horizontal” and “vertical” agreements between firms. Horizontal agreements refer to agreements among direct competitors, i.e. at the same stage of the production chain and in the same market. Vertical agreements are agreements between firms at different stage or levels of the production chain and, therefore, in different markets.
Section 3(3) - pertains to “horizontal” agreements. Horizontal agreements (including cartels) among entities engaged in identical or similar trade of goods/provisions of services are presumed to have an appreciable adverse effect on competition (AAEC), if they fix prices, limit production or supply, share market, or result in bid rigging or collusive bidding. However, this presumption is rebuttable. These horizontal agreements include cartels, which are usually secret, verbal and often informal agreements between competitors not to compete with each other and increase each members’ profits. These are considered the most harmful anti-competitive practice known to competition law and are the prime target of competition authorities’ world over.
Section 3(4) - deals with “vertical” agreements between persons in a production chain in different markets in respect of production, supply, distribution, storage, sale or price of or trade in goods or provision of services. This section has an inclusive definition, which includes a tie-in arrangement, exclusive supply agreement, and refusal to deal, exclusive distribution agreement and resale price maintenance. These five situations re not exhaustive and could include other situations. Unlike horizontal agreements under section 3(3) of the Act, there is no presumption of AAEC under section 3(4) of the Act and, therefore, in order to find a violation of section 3(4) of the Act, AAEC must be established.
While establishing AAEC, Commission is required to take into consideration the factors enumerated in section 19(3) of the Act. A detailed procedure for inquiry into the anti-competitive agreements between firms, including the procedure for analysis on investigation conducted by the DG to collect evidence is prescribed under section 26 of the Act. Section 36 read with section 41 empower both CCI and DG for the inquiry/investigation.
Abuse of Dominant position (Section 4)
“Dominant position”- signifies a position of strength and is reflected in terms of market power that an enterprise commands in a particular market. However, holding a dominant position/monopoly is not a violation of the law. But if dominant firms in the market tend to exploit their market power to eliminate a competitor or to deter future entry by new competitors and harm competition then such conduct amounts to “abuse of dominant position”. Abuse of dominance impedes fair competition between firms, makes it difficult for the other players to compete with the dominant firm on merit and harms the consumers and the economy.
The Competition Act mandates that no enterprise or group shall abuse its dominant position and provides for five different situations in which the conduct of a dominant firm would be treated as contravention of the Act. These situations, which are a mix of both exploitative and exclusionary conducts, are:
- Imposition of unfair and discriminatory conditions or price in sale of goods or service, including predatory pricing;
- Limiting production of goods or provision of services or market or technical or scientific development relating to goods or services;
- Indulging in practices resulting in denial of market access in any manner;
- Concluding contracts only on acceptance of supplementary obligations without any connection to such contracts;
- Leveraging its dominant position in one market to gain advantage or protect its position in another market.
It may be noted that there is no need to prove AAEC in the relevant market in case of “abuse of dominant position”. As per jurisprudence developed on section 4 so far, the only requirement is to prove dominance in a relevant market and to establish the particular abuse / abusive conduct. A detailed procedure for inquiry into the “abuse” of dominant position by firms, including the procedure for analysis on investigation conducted by the DG to collect evidence is prescribed under section 26 of the Act. Section 36 read with section 41 empower both CCI and DG for the inquiry/investigation.
Regulation of Combinations (Section 5 & 6)
“Combination” refers to such mergers, amalgamations, and acquisitions of control, shares, voting rights or assets, between firms, which collectively cross the thresholds in terms of assets or turnover. The thresholds prescribed are high and have been further raised by fifty per cent in March 2016 through notification by the Government of India. Most combinations do not raise serious prospect of an increase in market power; some may however, raise serious concerns, which can be detrimental to competition. The core purpose of regulating combinations is to prevent the prospective anti-competitive effects of such combinations though appropriate remedies, including prohibition if necessary.
The Competition Act provides for mandatory filing of notification for proposed combinations, which is required to be made within 30 days from the date of execution of any binding document (such as Board Resolution, Share Purchase Agreement, Joint Venture Agreement etc.), which includes any statutory filing made before any other statutory body, (such as stock exchange regulator SEBI) which conveys the intention of the parties to proceed with the transaction.
The implementing “Combination Regulations”, introduced in 2011, give enough clarity to firms on filing requirements. There are heavy penalties prescribed for firms which fail to notify such combinations
The Competition Act provides for the maximum time period of 210 days to finalize a decision on a combination filing. Since time is essence of combinations, a provision in the Regulations to reduce this period to one hundred eighty days has been included on best endeavor basis. Further, pursuant to provisions in combinations regulations, the Commission has to form a prima facie opinion within thirty days as to whether the combination is likely to cause an AAEC on the competition. As per the experience, most of the filings are likely to be approved in this shorter time frame.
For assessing whether the proposed combination is likely to cause AAEC on competition in the relevant market, Commission is guided by Section 20 (4) of the Act, which includes factors such as market share, dependence of consumers, likelihood of combination leading to removal of effective competitor etc.
A detailed procedure for inquiry into the combinations by firms, including the procedure for analysis on investigation conducted by the DG to collect evidence, if so directed by CCI, is prescribed under section 29 and 31 of the Act. Section 36 read with section 41 empower both CCI and DG for the inquiry/investigation.
Competition law is a blend of economics and law. Sound economic analysis of vexed competition law issues is our USP. Our lawyers, with qualification in both law and economics, are adept in applying economic principles in resolving vexed competition law issues. This involves broadly the following four categories of professional services relating to enforcement of Competition Act.
A. Litigation Services
1. Antitrust Litigation before DG / CCI / COMPAT / High Courts / Supreme Court-
- Cartels & Horizontal Anti-Competitive Agreements [Section 3 (3)]- Representing clients in prosecuting as well as defending allegations of cartelization viz. price fixing, limiting or restricting entries into markets or market allocation /customer sharing, and bid-rigging/collusive bidding.
- Leniency Filings in Cartels [Section 46] –Representing clients in Leniency filings, which can result in significant reduction of fines for cartel members.
- Vertical Restraints / Vertical Anti-Competitive Agreements [Section 3 (4)] –Representing clients in prosecuting as well as defending in cases of hard core vertical restraints such as resale price maintenance, refusal to deal, tie-in arrangements, and exclusivity, non-compete etc.
- Restraints on IPR Licensing [Section 3 (5)] – Representing clients in prosecuting as well as defending allegations of abuse of dominance on account of restraints imposed in licensing of IPRs such as Patents, Copyrights to user industries.
- Abuse of Dominance / Market Power [Section 4] – Representing clients in prosecuting as well as defending allegations of abuse of dominance for both exploitative as well as exclusionary conducts by enterprises/groups.
- Compensation Claims / Private Action Suits / Class Action Suits [Section 53N] – Representing clients in prosecuting as well as defending Compensation claims, which can arise from any finding of the CCI and COMPAT of contravention of the provisions of the Competition Act. Assisting the clients in the quantification of such claims and filing private litigation in the COMPAT on behalf of victims of anti-competitive practices.
- Foreign Cartels / Abuse of Dominance Having Effect on Markets in India [Section 32] – The CCI has extraterritorial jurisdiction in prosecuting cartels and abuse of dominance. Representing clients in prosecuting as well as defending allegations of adverse effect on competition in Indian markets arising out of the conduct of foreign cartels/exercise of market power by dominant foreign firms before the CCI.
2. Combination/Merger related Litigation before CCI / COMPAT / High Courts / Supreme Court-
- Gun-Jumping Cases [Section 43A] - Representing clients before CCI for defending show-cause notices issued by CCI for alleged failure to notify a combination in time or for part consummation of the transaction before CCI approval. We also represent clients in challenging the CCI show-cause notice before the High Court as well as Supreme Court.
- Cases of Omissions / False Information in Notice Filed [Section 44/45] - Defending clients against alleged false information in the combination notices filed before the CCI as well as cases of omission to include all information in the notice.
- Modifications / Remedies [Section 31]- Where the CCI directs modification of a combination or imposes remedies while conditionally approving the mergers, we assist the clients in negotiating such remedies with the CCI as well as ensuring effective implementation of the structural as well a behavioral remedies.
B. M&A Transactions - Filings before CCI- Filing the Statutory Notice for combination i.e. acquisitions , acquiring of control, mergers and amalgamations, including demergers and joint ventures ,on behalf of the parties to a corporate transaction in CCI in the prescribed FORM I or FORM II and obtain approval of the transaction within statutory time limits .
C. Advisory & Opinions –on Antitrust / Combination / M&A Filings etc. –
- On Antitrust- Advising individual firms as well as trade associations in reviewing existing or contemplated agreements from possible competition law violations before or after execution of agreements. We also undertake competition audits and prepare industry specific training manuals as part of our Competition Compliance Program (CCP), including specific manuals such as “Dawn Raid” Instruction manual etc.
- On Combinations- Arranging for Pre Filing Consultations (PFC) with the Combination Division of CCI to clear any doubts on the filing requirements in a pending transaction since only those transactions which qualify as a combination are required to notify the CCI . Undertaking due diligence on CCI filing requirements for parties in a transaction and provide opinion on the same taking in to account the exemptions available for various transactions.
D. Policy Issues - Advising Industry chambers as well as Government departments on contemplated policy changes as well as for review of existing policies or enforcement bottlenecks of policies and their effect on competition.