1 EVOLUTION OF COMPETITION LAW IN INDIA Pradeep S Mehta CUTS International

2 EXTANT COMPETITION LAW OF INDIA MONOPOLIES AND RESTRICTIVE TRADE PRACTICES ACT,1969 BROUGHT INTO FORCE IN 1970

3 MRTP ACT’S ROOT A LODE STAR CONSTITUTION OF INDIA - DIRECTIVE PRINCIPLES OF STATE POLICY B PRINCIPLES SOCIAL JUSTICE WITH ECONOMIC GROWTH WELFARE STATE REGULATING CONCENTRATION OF ECONOMIC POWER TO THE COMMON DETRIMENT CONTROLLING MONOPOLISTIC, UNFAIR AND RESTRICTIVE TRADE PRACTICES

4 THREE STUDIES SHAPE THE MRTP ACT « HAZARI COMMITTEE REPORT ON INDUSTRIAL LICENSING PROCEDURE, 1955 – WORKING OF THE LICENSING SYSTEM HAS RESULTED IN DISPROPORTIONATE GROWTH OF SOME BIG HOUSES « MAHALANOBIS COMMITTEE REPORT ON DISTRIBUTION AND LEVELS OF INCOME, 1964 – TOP 10 % OF THE POPULATION CORNERED 40 % OF INCOME AND BIG BUSINESS HOUSES WERE EMERGING BECAUSE OF PLANNED ECONOMY MODEL « MONOPOLIES INQUIRY COMMISSION REPORT OF DAS GUPTA, 1965 – THERE WAS CONCENTRATION OF ECONOMIC POWER AND A FEW INDUSTRIAL HOUSES WERE CONTROLLING A LARGE NUMBER OF COMPANIES AND THERE EXISTED LARGE SCALE RTP & MTP.

5 OBJECTIVES OF THE MRTP ACT  PREVENTION OF CONCENTRATION OF ECONOMIC POWER TO THE COMMON DETRIMENT  CONTROL OF MONOPOLIES  PROHIBITION OF MONOPOLISTIC TRADE PRACTICES (MTP)  PROHIBITION OF RESTRICTIVE TRADE PRACTICES (RTP)  PROHIBITION OF UNFAIR TRADE PRACTICES (UTP)

AMENDMENTS TO THE MRTP ACT HIGH - POWERED EXPERT COMMITTEE REPORT OF JUSTICE SACHAR THE REPORT RECOMMENDED THAT A SEPARATE CHAPTER SHOULD BE ADDED TO THE MRTP ACT DEFINING UTPs ESSENTIALLY IN THE INTERESTS OF CONSUMERS. ADVERTISEMENT AND REPRESENTATION TO CONSUMERS SHOULD NOT BECOME DECEPTIVE BUT SHOULD BE TRANSPARENT.

7 RESTRICTIVE TRADE PRACTICES Ñ REFUSAL TO DEAL Ñ TIE-UP SALES Ñ FULL LINE FORCING Ñ EXCLUSIVE DEALINGS Ñ PRICE DISCRIMINATION Ñ RE-SALE PRICE MAINTENANCE Ñ AREA RESTRICTION

8 UNFAIR TRADE PRACTICES  MISLEADING ADVERTISEMENT AND FALSE REPRESENTATION  BARGAIN SALE, BAIT AND SWITCH SELLING  OFFERING OF GIFTS OR PRIZES WITH THE INTENTION OF NOT PROVIDING THEM AND CONDUCTING PROMOTIONAL CONTESTS  PRODUCT SAFETY STANDARDS  HOARDING OR DESTRUCTION OF GOODS

9 MONOPOLISTIC TRADE PRACTICES 1. UNREASONABLE PRICING 2. PREVENTING OR LESSENING COMPETITION IN SUPPLY/DISTRIBUTION OF GOODS/SERVICES 3. LIMITING TECHNICAL DEVELOPMENT, CAPITAL INVESTMENT OR PRODUCTION/SUPPLY 4. UNREASONABLE PROFITS (PROFITEERING)

REFORMS AND SINCE RECENT POLICY CHANGES FROM 1991 ONWARDS INCLUDE:  DEREGULATION AND SIMPLIFICATION OF LICENSING AND  APPROVAL PROCEDURES  EXEMPTION OF A LARGE NUMBER OF INDUSTRIES FROM LICENSES,  APPROVALS AND QUOTAS  NEW ECONOMIC ADJUSTMENT MEASURES  DIVESTITURE AND SALE OF GOVERNMENT ASSETS  GRADUAL DECLINE IN THE INTERVENTIONIST ROLE OF THE PUBLIC  SECTOR  PRIVATISATION  ENCOURAGING COMPETITION

AMENDMENTS TO MRTP ACT 1. SIZE CONCEPT GIVEN UP 2. CURBS ON GROWTH OF MONOPOLY COMPANIES DELETED 3. MERGER CONTROL REMOVED 4. MORE EMPHASIS ON PROHIBITION OF RTPs, UTPs AND MTPs IN SUM, BIG BECOMING BIGGER IS NO MORE UGLY

12 EXPERIENCE IN THE LAST THREE DECADES NO MENTION OR DEFINITION OF OFFENCES LIKE (ILLUSTRATIVE) ABUSE OF DOMINANCE CARTELS, COLLUSION AND PRICE FIXING BID RIGGING BOYCOTTS AND REFUSAL TO DEAL PREDATORY PRICING LARGE NUMBER OF INTERPRETATIONS & CASE LAWS AFFECTING THE INTENT/SPIRIT OF THE MRTP ACT WTO FALL OUT OBLIGATIONS

13 NEED FOR A NEW WINE NEED FOR A NEW LAW HAS ITS ORIGIN IN FINANCE MINISTER’S BUDGET SPEECH IN FEBRUARY,1999 : “ THE MRTP 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 COMMITTEE TO EXAMINE THIS RANGE OF ISSUES AND PROPOSE A MODERN COMPETITION LAW SUITABLE FOR OUR CONDITIONS.”

14 HIGH LEVEL COMMITTEE ¯ GOVERNMENT APPOINTED A HIGH LEVEL COMMITTEE TO ADVISE A MODERN COMPETITION LAW FOR INDIA IN LINE WITH INTERNATIONAL DEVELOPMENTS AND TO SUGGEST A LEGISLATIVE FRAME WORK. ¯ THE COMMITTEE INCLUDED COMPETITION EXPERT, REPRESENTATIVES OF INDUSTRY AND CONSUMERS, ECONOMIST, CHARTERED ACCOUNTANT, ADVOCATE ETC.

15 TRIGGER FOR METAMORPHOSIS FROM MRTP ACT TO COMPETITION ACT |RECOMMENDATIONS OF EXPERT GROUP |RECOMMENDATIONS OF HIGH LEVEL COMMITTEE |RECOMMENDATIONS OF STANDING COMMITTEE OF PARLIAMENT |UNANIMITY TO REPEAL MRTP ACT AND TO ENACT A NEW LAW |APPRECIATION THAT THE MRTP ACT WAS MORE CONCERNED WITH CURBING MONOPOLIES RATHER THAN WITH PROMOTING COMPETITION |APPRECIATION THAT PRE-1991 LPG HAS CHANGED TO POST-1991 LPG |RECOGNITION THAT INDIAN ENTERPRISES ARE SMALL IN SIZE AND NEED TO GROW TO BECOME GLOBALLY COMPETITIVE

16 FOUR COMPARTMENTS ã ANTI-COMPETITION AGREEMENTS ã ABUSE OF DOMINANCE ã MERGERS, AMALGAMATIONS, ACQUISITIONS AND TAKE-OVERS ã COMPETITION ADVOCACY

17 ANTI - COMPETITION AGREEMENTS : HORIZONTAL RESTRAINTS : nCARTELS {FIXING PURCHASE OR SALE PRICES (EXPORT CARTELS EXEMPTED) } n BID-RIGGING (COLLUSIVE TENDERING) n SHARING MARKETS BY TERRITORY, TYPE ETC. n LIMITING PRODUCTION, SUPPLY, TECHNICAL DEVELOPMENT : VERTICAL RESTRAINTS : n TIE-IN ARRANGEMENTS n EXCLUSIVE SUPPLIES n EXCLUSIVE DISTRIBUTION n REFUSAL TO DEAL n RESALE PRICE MAINTENANCE n ADJUDICATION BY RULE OF REASON

18 ABUSE OF DOMINANCE DOMINANCE NOT LINKED TO ANY ARITHMETIC FIGURE OF MARKET SHARE DOMINANCE MEANS A POSITION OF STRENGTH ENABLING AN ENTERPRISE TO OPERATE INDEPENDENTLY OF COMPETITIVE PRESSURE AND TO APPRECIABLY AFFECT THE RELEVANT MARKET,COMPETITION AND CONSUMERS. ABUSE OF DOMINANCE ARISES IF AN ENTERPRISE IMPOSES UNFAIR /DISCRIMINATORY PURCHASE OR SALE PRICES (INCLUDING PREDATORY PRICES) LIMITS PRODUCTION,MARKETS OR TECHNICAL DEVELOPMENT DENIES MARKET ACCESS CONCLUDES CONTRACTS SUBJECT TO OBLIGATIONS HAVING NO CONNECTION WITH THE SUBJECT OF THE CONTRACTS. USES DOMINANCE TO MOVE INTO OR PROTECT OTHER MARKETS RELEVANT MARKET = RELEVANT PRODUCT MARKET + RELEVANT GEOGRAPHIC MARKET

19 COMBINATIONS MERGERS/AMALGAMATIONS 1. REDUCTION IN NUMBER OF PLAYERS 2. ACQUISITION OF ENORMOUS ECONOMIC STRENGTH 3. DISCOURAGEMENT OF NEW ENTRANTS PEJORATIVE EFFECTS 4. DICTATION OF PRICES 5. DOMINANCE 1. COMPETITION LAW TO HAVE SURVEILLANCE OVER COMBINATIONS BEYOND A THRESHOLD LIMIT (Assets > Rs.1000 Crores or Turnover > Rs.3000 Crores ) 2. NOTIFICATION OF COMBINATIONS VOLUNTARY AND NOT MANDATORY 3. CCI MANDATED TO DECIDE WITHIN 90 WORKING DAYS ELSE DEEMED APPROVAL REGULATION ON COMPETITION PERSPECTIVE

20 COMPETITION ADVOCACY THE COMPETITION COMMISSION OF INDIA ¨ IS ENABLED TO PARTICIPATE IN THE FORMULATION OF POLICIES AND REVIEWING OF POLICIES RELATING TO COMPETITION AT THE INSTANCE OF THE GOVERNMENT ¨ IS REQUIRED TO CREATE COMPETITION CULTURE ¨ IS REQUIRED TO ACT AS COMPETITION ADVOCATE

21 EXEMPTIONS GOVERNMENT BY NOTIFICATION MAY EXEMPT FROM THE COMPETITION LAW A ANY CLASS OF ENTERPRISES IN THE INTEREST OF NATIONAL SECURITY/PUBLIC INTEREST. B.ANY PRACTICE/AGREEMENT ARISING OUT OF INTERNATIONAL TREATY/AGREEMENT C.ANY ENTERPRISE PERFORMING A SOVEREIGN FUNCTION ON BEHALF OF GOVERNMENT DIFFERENT PROVISIONS FROM DIFFERENT DATES IF, NEED BE.

22 COMPETITION NEEDS TO BE INCORPORATED IN INDUSTRIAL POLICY RESERVATIONS FOR SSI TRADE POLICY (TARIFFS, SUBSIDIES ETC) STATE MONOPOLIES POLICY LABOUR POLICY REFORMS POLICY (PRIVATISATION ETC) COMPETITION LAW CAN NOT OPERATE IN A VACUUM UNLESS PRE-REQUISITES OF COMPETITION POLICY ARE ALSO IN PLACE

23 IS A COMPETITION LAW REQUIRED AT ALL? n WITH GLOBALISATION, THERE IS LIKELY TO BE SIGNIFICANT RESTRUCTURING OF MANUFACTURE, TRADE AND SERVICES n DOMESTIC CONSOLIDATION AND ENTRY OF FOREIGN ENTITIES n ANTI-COMPETITION PRACTICES MAY SURFACE AS A CONSEQUENCE n WTO FALL OUT OBLIGATIONS NEED TO BE ADDRESSED n REGULATORY AND ADVOCACY FUNCTIONS NEED TO BE POSITED n EXISTING MRTP ACT IS INADEQUATE n NEW COMPETITION LAW WILL SUPPLANT MRTP ACT n WITHOUT A COP, TRADE TRAFFIC MAY PREJUDICE CONSUMER INTEREST n COMPETITION LAW WILL BE A COP AND A FRIEND

24 OLD WINE OR NEW WINE ? MRTP ACT 1. BASED ON PRE-1991 control regime 2. PREMISED ON SIZE 3. PROCEDURE ORIENTED 4. NO TEETH (REFORMATORY) 5. OFFENCES DEFINED IMPLICITLY (CARTELS, BID-RIGGING ETC.) 6. FROWNS ON DOMINANCE (25% OF MARKET SHARE) 7. UNFAIR TRADE PRACTICES COVERED 8. RUE OF LAW APPROACH 9. NO COMPETITION ADVOCACY ROLE FOR MRTPC NEW LAW 1. BASED ON POST-1991 reforms 2. PREMISED ON CONDUCT 3. RESULT ORIENTED 4. CAN BITE (PUNITIVE ) 5. OFFENCES DEFINED EXPLICITLY 6. FROWNS ON ABUSE OF DOMINANCE 7.UNFAIR TRADE PRACTICES OMITTED 8. RULE OF REASON APPROACH 9. CCI HAS COMPETITION ADVOCACY ROLE