Law

Competition Law in India

Competition law is a classical example wherein the government wants to meet the compelling needs of the changing times. The Indian Monopolies and Restrictive Trade Practices Act (MRTP Act) was enacted in the era of restrictive economy. With the opening up of the economy in 1991, and subsequently the advent of the WTO in 1995, it was felt that the MRTP Act had outlived its utility and no longer remained useful in the changed environment. While the open market economy would ensure adequate competition, at the same time, experience in other countries had indicated that some enterprises do try to undermine the market by resorting to anti-competitive practices. Hence, it was felt that such practices could nullify the gains from competition, which could be answered only by having a new competition law. Accordingly, the Competition Act 2002 was enacted. Introduction of the Act was a key step in India’s march towards facing competition – both from within the country and from international players.

What the Act primarily seeks to regulate are the practices that have an adverse effect on competition in the market(s) in India. In addition, the Act intends to promote and sustain competition in markets, protect consumer interests, and ensure freedom of trade in the market(s) in India.  At the heart of the Act are various activities that will be prohibited as being anti-competitive. The activities comprise:

(a) Anti-competitive arrangements;

(b) Abuse of dominant position; and

(c) Mergers and acquisitions that have an appreciable adverse effect on competition in India.

Anti-competitive agreements

The Competition Act provides that no enterprise or association of enterprises or person or association of persons shall enter into any agreement in respect of the production, supply, distribution, storage, acquisition or control of goods or provision of services which causes or is likely to cause an appreciable adverse effect on competition. Any such agreement(s) will be void ab initio i.e. unenforceable. The Competition Act also expressly provides that such agreements will be penalised under the Competition Act. Adverse effect on competition refers to a particular economic consequence, which may be produced by different sorts of agreements over a period of time, ranging from days to years and in different market conditions.  The words ‘adverse effect on competition’ includes acts, contracts, agreements or combinations which prejudice the public interest by unduly restricting competition or due course of trade. In determining whether an agreement has an appreciable adverse effect on competition, certain specified factors may be taken into account which are creation of barriers to new entrants in the market, driving existing competitors out of the market, accrual of benefits to consumers, improvements in production or distribution of goods or provision of services, foreclosure of competition by hindering entry into the market, promotion of technical, scientific and economic development by means of production or distribution of goods or provisions of services.

Abuse of dominant position

Under the Competition Act 2002, the abuse of a dominant position is illegal. Section 4 of the Act states that no enterprise shall abuse its dominant position. Dominance, in context of trade, commerce and industry, refers to an enterprise which either by itself or along with others outplays or overshadows other enterprises. According to Article 1(b) of the UNCTAD Model Law on Competition, ‘dominant position of market power’ refers to a situation where an enterprise, either by itself or acting together with a few other enterprises is in a position to control the relevant market for a particular good or service or a group of goods or services. The essence of dominance is the power to behave independently of competitive pressures. The High Level Committee on Competition Law and Policy recommended that dominance needs to be appropriately defined in the Competition law. ‘Dominant Position’ has been defined in explanation (a) to section 4 of the Competition Act as a position of strength enjoyed by an enterprise, in the relevant market in India, which enables it to (i) operate independently of competitive forces in the relevant market; or (ii) affect its competitors or consumers or relevant market in its favour. As such, there is no numerical limit with regard to the market share at which an enterprise can be said to be in a ‘dominant position’. As illustrated in the Report of the High Level Committee on Competition Law and Policy, an enterprise with a market share of 20% can be said to be in a position to abuse its dominant position, if a large number of competitors diffusively holds the remaining 80%. Similarly, even a firm with 60% cannot be said to be in a position to abuse its dominance, if the remaining 40% is held by a strong competitor. Thus, the dominant position of an enterprise is such a position where an enterprise is in a position of strength whereby it can control the relevant market for a product or service or can operate independently of competitive forces in the relevant market. In determining whether an enterprise enjoys a dominant position, certain factors like market share of the enterprise, size and resources, the size and importance of its competitors, market structure and size of the market, dependence of consumers on the enterprise, social obligations and social costs etc. are to be considered.

As mentioned earlier, it is the abuse of a dominant position and not merely the existence of a dominant position which is treated as illegal under the Indian Competition Act. A distinction must be drawn between abuse of dominant position and misuse of dominant position. Section 4(2) of the Act sets out what constitutes ‘abuse of a dominant position’. If an enterprise, that is in a dominant position, i.e., in a position of strength which enables it to act independently of competitive pressure, acts in a manner that hinders the maintenance of or growth of competition in the relevant market, it acts in abuse of its dominant position. There are primarily three stages in determining whether an enterprise has abused its dominant position. The stages involved are first, determining the relevant market, second, the existence of dominant position and third, the identification of special harmful conduct.

Concluding Remarks 

The Competition Act is in consonance with international trends and deals with aspects dealt with in most competition legislations across the globe. The Act seeks to sustain as well as promote competition and prevent practices that impede competition thus showing that it recognizes the role of healthy competition in the market and seeks to promote economic growth and consumer interest. It lays down fetters to ensure that competition is not only free and fair and that the market does not suffer due to distortions and practices that unfavourably affect competition. Further, it recognizes that undertakings and enterprises have to undergo restructuring in order to adapt to the needs of changing circumstances and levels of competition.

About the Author

Prachi GuptaPrachi is a qualified lawyer with more than 8 years of professional experience. She is currently assisting the Competition Commission of India as their Law Expert. She has experience in various areas like Intellectual Property, Anti-terrorism, Competition Law. She had previously worked in research based positions at High Court of Delhi and Ministry of Home Affairs. She is currently working as the Associate Editor at Alexis Insights.

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