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1 Genesis and o verview of the Competition Act, 2002 G.R. BHATIA ADDITIONAL DG Competition Commission of India, New Delhi.

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Presentation on theme: "1 Genesis and o verview of the Competition Act, 2002 G.R. BHATIA ADDITIONAL DG Competition Commission of India, New Delhi."— Presentation transcript:

1 1 Genesis and o verview of the Competition Act, 2002 G.R. BHATIA ADDITIONAL DG Competition Commission of India, New Delhi

2 2 MCA reforms rabbit has not been allowed to become turtle

3 3 MCA Opted for----------- Incremental Updation in Company Law Stock Approach in Competition Law

4 4 COMPETITION – promotes efficiency; encourages innovation; punishes the laggards; facilitates better governance; boosts choice improves quality, reduce costs; ensures availability of goods in abundance of acceptable quality at affordable price.

5 5 Companionship between competitiveness and corruption. Companionship between competitiveness and corporate governance.

6 6 UNIQUE FEATURES OF COMPETITION We teach and preach competition but invariably do not practice Competition does not have a human face Competition kills competition Competition is unstable Nature has created monopolies

7 7

8 8 Competition is an evasive term It is not defined in the Act It refers to economic rivalry amongst economic enterprises to control greater market power Economic enterprises compete to outsmart their competitors and in the process sometimes eliminate rivals. Level of Competition does not depend upon number of players in an industry but degree of contestability.

9 9 History of Competition Law In 1980, less than 40 countries had Competition Law Currently over hundred countries have Competition Law Over 30 countries are in the process of enacting Competition Law.

10 10 An Expert Group set up by the Union Ministry of Commerce to study inter action between the trade and competition. The said Expert Group in its Report submitted in January,1999 suggested enactment of Competition Law.

11 11 The Finance Minister in his Budget Speech on 27 th February, 1999 stated: The Monopolies and Restrictive Trade Practices Act has become obsolete in certain areas in the light of international economic developments relating to competition laws. We need to shift our focus from curbing monopolies to promoting competition. The Government has decided to appoint a Commission to examine this range of issues and propose a modern competition law suitable for four conditions.

12 12 The High Level Committee on Competition Law & Policy in its Report submitted to Government in May, 2000 observed that the M.R.T.P. Act, 1969 is limited in its sweep and in the present competitive milieu it fails to fulfill the need of competition law.

13 13 The Department Related Parliamentary Standing Committee on Home Affairs to which Competition Bill, 2001 was referred for examination and report, the Government submitted that in view of the policy shift from curbing monopolies to promoting competition, there is a need to repeal the M.R.T.P. Act. The rigidly structured M.R.T.P.Act also necessitated its repeal in view of Governments policy of being facilitator rather than regulator

14 14 The shepherd drives the wolf for which sheep thanks the shepherd as his liberator while wolf denounces him for same act as destroyer of liberty. In plain words, the sheep and wolf are not agreed upon the definition of Liberty. ABRAHAM LINCOLN

15 15 PREAMBLE MRTP ACT, 1969 to provide that the operation of the economic system does not result in the concentration of economic power to the common detriment, Control of monopolies, Prohibition of monopolistic and restrictive trade practices. COMPETITION ACT,2002 Establishment of a Commission to prevent practices having appreciable adverse effect on competition; to promote and sustain competition in markets; to protect the interest of consumers and to ensure freedom of trade carried on by other participants in markets, in India

16 16 COMPETITION ACT, 2002 OBJECTIVES:- To prevent practices having appreciable adverse effect on competition; to promote and sustain competition in trade and industry; to protect the interest of consumers; to ensure freedom of trade carried on by the participants in market in India; Establishment of the Competition Commission of India.

17 17 Law to be implemented in the phases In the first phase, the Competition Commission I to undertake competition advocacy; In the second phase, the Competition Commission will commence enquiries relating to anti-competitive agreements and abuse of dominant position. In the third phase, the Commission will commence regulation of combinations Law also stipulates that different dates may be appointed for different provisions

18 18 Present Status: The Central Government has since established the Competition Commission of India with head office at New Delhi with effect from 14.10.2003 The Central Government has also appointed a Member with effect from 17.10.2003 and he has been designated as Member Administration with effect from 21.10.2003 The Commission is presently seized of preparatory work such as formulation of regulation, setting up of infrastructure, advocacy material, capacity building etc. The Government is contemplating to make certain amendments in the Act.

19 19 The Commission is presently seized of Competition Advocacy which includes – creating awareness, capacity building of functionaries of CCI & stakeholders. The Commission is assisted by the following Advisory Committees:- i) Advisory committee on Regulations ii) Advisory committee on Advocacy iii) Advisory committee on Economic Information iv) Advisory committee on Course Curriculum v) Advisory committee on Research Evaluation vi) Advisory committee on Predatory Pricing

20 20 Competition Act seeks to modernize competition regime The Act provides for repeal of the M.R.T.P.Act and the dissolution of the M.R.T.P.Commission. The notification in this regard is yet to be issued. The Act provides for transfer of RTP Enq. to CCI and UTP Enq. to Forums under CPA

21 21 The term Goods includes shares and shares before allotment. IPRs are included in terms of orders of Commission. Service which are rendered free of charge or under a contract of personal service are excluded. Shares before allotment will be outside. Shares after allotment stands covered. Debentures have also been included. The definition of Service has been rationalized and amplified. Accounting, communication, education, storage, material treatment, construction, repairs have been specifically covered.

22 22 Cartel is not explicitly defined Enterprise Cartel has been explicitly defined. It includes an association of producers, sellers, distributors, traders or service providers who by agreement amongst themselves limit, control or attempt to control the production, distribution, sale or price of, trade in goods or services. The scope of term Enterprise has been amplified and Govt.Departments performing non-sovereign functions has been brought within its ambit

23 23 The term Consumer not defined. Consumer is referred to as one defined in Consumer Protection Act, 1986 The term Consumer has been explicitly defined. It includes buyer of goods or one who avails of services for consideration irrespective whether it is for commercial use or personal use.

24 24 The trade practice concepts Monopolistic, Restrictive and Unfair Trade Practices has been given good bye. The four important Concepts incorporated in the Act are: 1. Prohibition of Anti Competitive Agreements 2. Prohibition of Abuse of Dominant Position 3. Regulation of Combinations 4. Competition Advocacy The Act is in line with international trend.

25 25 Under the M.R.T.P.Act there are 14 deemed Restrictive Trade Practices – - Refusal to deal - Tie up sale - Exclusive dealing - Differential discount - Resale Price Maintenance - Allocation of market - Restriction on mfg. process - Cartel - Predatory pricing - Restraint on bids - Any agreement notified as such by Central Govt. - Agreement to enforce restrictive agreement In the Competition Act, there are only 9 anti-competitive agreements out of which 4 are deemed only. These are:- - Fixation of price - Limiting production - Allocation of market - Bid rigging or Collusive tendering. The other 5 Anti-competitive agreements which are not deemed but are to be judged by Rule of Reason are – - Tie in arrangement - Exclusive supply agreement - Exclusive distribution agreement - Refusal to deal - Resale Price Maintenance

26 26 Exclusions: JVs enhancing efficiency are not presumed to have appreciable adverse effect. Reasonable Restrictions in exercise of IPRs are excluded. Agreement relating to exports

27 27 Under the M.R.T.P.Act, the prejudicial to public interest is a pre- condition before passing adverse order in restrictive Trade Practice Enquiry Under the Competition Act, 2002 appreciable adverse effect on competition is key factor in Anti- Competitive agreements: These are: (i) creation of barrier to new entrants. (ii) driving existing competitors; (iii) foreclosure of competition; (iv) accrual of benefits; (v) Improvements in production or distribution; and (vi) Promotion of technical, scientific or economic development.

28 28 Monopolistic Trade Practices is generally referred to as a trade practice of - (i) maintaining cost/price at unreasonable level, (ii) lessening/preventing competition, (iii) limiting technical development, increasing unreasonably the costs or prices of goods/services to be sold/rendered.

29 29 In case of Monopolistic Trade Practice, the role of the M.R.T.P.C is advisory and final power to take action vests in the Central Government. An undertaking is known as dominant if it produces, controls, supplies or distributes 25% or more of the total production of goods/services producers/supplied/rendered etc.

30 30 To determine dominance, the factors to be considered are:- market share of enterprise, size and resources of enterprise, size and important of competitors, Commercial advantage of competitors, Vertical integration, Dependence of consumers, Dominance because of statute, Entry barriers, Countervailing buying power, market structure and size of market social obligation and Contribution to economic development any other factor.

31 31 Abuse of Dominance Existence of dominance is not bad. Exercise of dominance if it falls amongst Abuses, is only frowned upon Dominance means position of strength which enables it to operate independent of competitors, consumers or relevant market in its favour

32 32 Abuse include: Unfair/discriminatory price or conditions. Limiting or restricting production Denial of market access Conclusion of agreements subject to supplementary obligations Use of dominance; to enter into another market.

33 33 POWERS OF COMPETITION COMMISSION OF INDIA To issue Cease & Desist Order To modify the trade agreement. To grant such interim relief during the enquiry To award compensation. To impose penalty on the guilty. To recommend division of enterprise. To direct modification of trade agreements.

34 34 Under the Competition Act: The CCI has been empowered to impose penalty which can be up to 10% of the average turnover for the last three preceding financial years upon each such enterprise who are parties to such agreements or abuse. In case of cartel, the Commission shall impose a penalty equivalent to three times of the amount of profits made out or 10% of average turn over whichever is more. Cartel is generally a secret understanding. It can be burst conveniently with the assistant of a member of cartel. Law empowers Commission to impose lesser penalty on a member of cartel can be there if a member discloses information before investigation/enquiry is taken up and who makes first disclosure which is full, true and vital.

35 35 Under the existing Law, the DG has power to initiate investigation suo moto The existing Law requires trade agreement containing restrictive clauses to be filed & registered with DG(I&R) An application can be moved by DG before Commission for Enquiry. Civil Court powers does not vest in DG DG is divested of suo moto power but in the proposed law investigation by DG is a condition precedent to Enquiry. The registration of registrable agreement is dispensed but whole agreement containing restrictive clause is void. Does not exist DG has been vested with Civil Court power

36 36 Under the M.R.T.P. Act a registrable agreement is required to be filed with DG. The requirement to file trade agreement containing anti-competitive clauses has been dispensed. The Agreement containing anti-competitive clause is wholly void.

37 37 MRTPC experienced problems relating to extra territorial reach. No provision for entering into Memorandum of Under- standing exists under the MRTP Act. It has been explicitly provided that CCI shall have jurisdiction in respect of Acts taking place outside India but having an effect on competition in India. CCI has been empowered to enter into Memorandum of Understanding with any foreign agency with the prior approval of the Central Government.

38 38 Under Section 27 & 27A of the Act, the Central Govt. is vested with power to Divide an Undertaking or severance of inter-connection on the recommendation of M.R.T.P. Commission. The Central Govt. on the recommendations of CCI continues to be vested with power to give directions of Division of an Enterprise enjoying dominant position. Marriage and Divorce amongst undertakings forms part of law.

39 39 A RTP/UTP Enquiry may be instituted – upon receipt of a complaint from any trade association, consumer or a registered consumer association; or upon a reference from Central Govt./State Govts., or upon an application by DG(I&R), or upon its own knowledge or information. An Enquiry into Anti-competitive agreement and dominant position may emanate: on its own motion; or on receipt of a complaint from any person, consumer or their association or trade association; or Upon a reference made to it by the Central Govt. or State Govt. or a Statutory Authority.

40 40 Combinations which exceeds threshold limits shall be regulated Nature of Combination Group Status CriterionValue (a) Acquisition by enterprises (b) Acquisition by individuals No Group Assets Turnover In India World over Rs.1,000 cr. US$ 500 millions Rs.3,000 cr. US$ 1500 million (c) Mergers/ amalgamation Group Assets Turnover In India World over In India World over Rs.4,000 cr. US$ 2 billion Rs.12,000 cr. 36 billion

41 41 The parameters to be kept in view while examining cases of combinations, have been prescribed. Central Govt. has been empowered to notify threshold limits after every two years Notification of Combination is optional COMBINATION SHALL BE DEEMED TO HAVE BEEN APPROVED BY COMMISSION IF NOTHING IS HEARD WITHIN 90 DAYS. Suo moto investigation/enquiry can be taken up only within a period of one year Notification by Financial Institutions, Banks VCF,etc is mandatory.

42 42 Factors have been prescribed to determine whether combinations would have appreciable adverse affect on competition. Under the MRTP Act, Combinations are not regulated since 1991 There is no requirement to get the undertaking registered There is no requirement to have prior approval of Government Under the MRTP Act, the Combinations were regulated by the Central Government

43 43 Competition Advocacy – an important compartment of Law Govt. while formulating policy may make a reference to the CCI for its opinion on possible effects on competition. Statutory Authority may make a reference on a Competition issue for opinion which has to be given by CCI within 60 days. Training and creating awareness about competition and its issues.

44 44 Competition Fund The Act provides for establishment of Competition Fund to meet expenses of CCI The fund would have two sources: (i) grant of money from consolidated funds of India; and (ii) Costs/fees received from parties. Competition fund is to ensure financial autonomy to CCI

45 45 The trial of offences of the Commissions Order shall be by the Commission itself. The DGs power of investigation have been substantially enhanced. There is a provision to set up additional benches in different cities besides Principal Bench and Merger Bench Wider pool of talent in the composition of Commission Key factor is Adverse appreciable effect on Competition Factors have been prescribed to determine dominance, relevant market, relevant product & geographical market

46 46 Reasons which necessitated enactment of new law The M.R.T.P.Act, 1969The Competition Act, 2002 1.The M.R.T.P. Commission has to pass cease & desist order on being convinced that the restrictive trade practice, which has been subject to enquiry, is prejudicial to public interest. The concept prejudicial to public interest is unclear, bald, vague and ambiguous The key factor in the Competition Act is appreciable adverse effect on competition for which the factors, which need to consider, have also been prescribed

47 47 4.Under the M.R.T.P.Act, it is mandatory for a party to file a trade agreement within 60 days with the office of the DGI&R if such trade agreement contains restrictive clauses.. In the regime of liberalization, the requirement to file registrable anti-competitive agreement with the office of the DG has been omitted. This is in line with the international trend 5.Under the M.R.T.P. Act only restrictive clause of the trade agreement can be declared void and not the whole agreement Under the Competition Act, the whole agreement is void in case it is found to have anti-competitive covenant having appreciable adverse effect on competition in the market

48 48 6.Under the M.R.T.P. Act, the powers of the DG have been found to be deficient and limited in carrying out investigation. Under the Competition Act, the DG is vested with all the powers as are vested in a Civil Court. 7.The M.R.T.P. Act contains provisions both relating to anti- competitive practices and consumer protection.. The Competition Act focus only on competition issues and does not contain provisions, which directly relate to consumer protection.

49 49 The other differences between the M.R.T.P. Act & Competition Act are: 1Based on the pre-reforms scenario Based on the post-reforms scenario 2.Based on size as a factorBased on structure as a factor 3.Competition offences implicit or not defined. Competition offences explicit and defined. 4.Complex in arrangement and language Simple in arrangement and language and easily comprehensible 5.14 per se offences negating the principles of natural justice 4 per se offences. All the rest subjected to rule of reason. 6.Frowns upon dominanceFrowns upon abuse of dominance 7.Registration of agreements compulsory No requirement of registration of agreements

50 50 8.No regulation on combination after 1991. Combinations regulated beyond a high threshold. 9.. MRTPC appointed by the Government CCI selected by a Collegium 10. Very little administrative and financial autonomy for the MRTPC Relatively more autonomy for the CCI 11. No competition advocacy role for the M.R.T.P.C CCI has competition advocacy role 12. No penalties for offencesPenalties for offences 13. Reactive and rigidProactive and flexible 14. Unfair trade practices coveredUnfair trade practices omitted 9consumer for a will deal with them. 15. No time frameworkTime is the essence 16. No provision for advocacyAdvocacy provision exist.

51 51 CCI is off the market regulator. Sectoral Regulators are on the market regulators.

52 52 The Competition Act with many innovative concepts coupled with power to impose penalties is likely to let in harsh glare of sun light to disinfect pernicious Anti Competitive Practices.

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