NILS Summer Law School Kochi - April 2015

Dhanendra Kumar Former Chairperson, Compe33on Commission of India

Currently, Principal Advisor, IICA and Chief Mentor, School of Compe33on Law and Market Regula3on

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COMPETITION LAW IN INDIA – AN OVERVIEW

Contents �  Benefits of competition

�  Historical overview

�  Competition Act, 2002 �  Anti-competitive agreements �  Abuse of dominance �  Regulation of combinations

�  Career prospects for young professionals 2

Benefits of Compe33on � True competition eliminates the need to plan, for as gravity guides water through the shortest path, competition naturally guides the economy to the most productive route. (RBI Governor, Dr Raghuram Rajan on CCI Annual Lecture)

� Competition can be used as a powerful instrument to achieve the macroeconomic policy goals – economic growth, competitiveness, inflation control, employment, innovation etc.

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Benefits of Compe33on

Consumers: Effective competition in properly regulated markets can deliver lower prices, better quality goods and services and greater choice for consumers.

Business : Competition can create strong incentives for firms to be more efficient and to invest in innovation, thereby helping raise productivity growth.

Government: Optimal realization from sale of assets, Savings of public money in procurement, Enhanced availability of resources for social sector.

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Need of Compe33on Law and Policy � Markets are vulnerable to distortions and anti-‐competitive conducts. Therefore, to protect competitive process and make sure that fair and healthy competition exists in the market competition law is needed.

� However, in addition to Competition Act, a Policy may assist in alignment of other Government policies and other laws to the ethos of competition.

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Compe33on Law & Compe33on Policy �  Competition law refers to the framework of rules and regulations designed to foster the competitive environment in a national economy. It consists of measures intended to promote a more competitive environment as well as enactments designed to prevent a reduction in competition.

�  Competition policy, on the other hand, broadly refers to all laws, government policies and regulations aimed at establishing competition and maintaining the same. It includes measures intended to promote, advance and ensure competitive market conditions by the removal of control, as well as to redress anti-‐competitive results of public and private restrictive practices.

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Historical Overview �  1951- Hazari Committee undertook the first study in the area of industrial

licensing procedure under the Industries (Development and Regulation) Act, 1951

�  1960-Government appointed the Mahalanobis Committee on the Distribution of Income and Levels of Living which noted that the top 10 percent of the population had cornered as much as 40 percent income

�  1964- the Monopolies Inquiry Commission (‘MIC’) found that there was high concentration of economic power in over 85 percent of industries

�  1969- MRTP Act : To curb these practices when prejudicial to public interest.

�  2000- Raghavan committee on competition policy and law presented its report.

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Passage of the Compe33on Act, 2002 �  2002- Competition Act enacted by the Parliament

�  2007-Amendment in the Act to address the concerns of the Supreme Court of India

�  2009-Enforcement of Section 3 and 4 of the Act

�  2011- Enforcement of Section 5 & 6 of the Act.

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Difference between MRTP Act & Compe33on Act MRTP Act Competition Act Objective was to curb monopolies

Aims to promote competition

Size based approach Effect based approach Prohibit monopolistic, restrictive and unfair trade practices

prohibit anticompetitive agreements, abuse of dominance and to regulate combinations

Suo-motu power of investigation vested in DG (I&R)

DG does not have suo- motu power for investigation

No power to impose penalties only power to order cease and desist

Power to impose heavy penalties in addition to cease and desist order 9

COMPETITON ACT, 2002 -‐ Preamble An Act to provide, keeping in view of the economic development of the country, for the establishment of a Commission to �  prevent practices having adverse effect on competition, �  promote and sustain competition in markets, �  protect the interests of consumers and �  ensure freedom of trade carried on by other

participants in markets, in India and �  for matters connected therewith or incidental thereto

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COMPETITON ACT, 2002 – Powers of CCI On the basis of information and knowledge received or in its possession (suo moto)

� Prima facie view {Section 26(1)} � Director General to investigate and report {Section 26(3)}

�  Inviting objections and suggestions {Section 26(5)} �  Decision of the Commission {Section 26(6) and 26(7)}

� Orders of the Commission (Section 27)

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COMPETITON ACT, 2002 – Inves3ga3ons by the DG � Powers as vested in a Civil Court under the Code of Civil Procedures 1908 a.  summoning and enforcing the attendance of any

person and examining him on oath; b.  requiring the discovery and production of documents; c.  receiving evidence on affidavit; d.  issuing commissions for the examination of witnesses

or documents; e.  requisitioning any public record or document or copy

of such of record or document from any office. 12

COMPETITON ACT, 2002 – Powers of CCI After inquiry if contravention is established, the Commission may pass all or any of the following orders:

§  Cease and desist §  Impose such penalty as it may deem fit not exceeding 10% of the average of the turnover for the last three preceding financial years upon each of person or enterprise

§  In case of cartel, a penalty of up to three times of its profit for each year of the continuance of such agreement or ten percent of its turnover for each year of the continuance of such agreement, whichever is higher each producer, seller, distributor, trader, or service provider included in that cartel) 13

COMPETITON ACT, 2002 – Powers of CCI §  Direct that agreements shall stand modified to the extent and in the manner as may be specified in the order of the Commission.

§  Direct the enterprises concerned to abide by such other orders as the Commission may pass and comply with the directions, including payment of costs, if any.

§  Pass any other order or issue directions as it may deem fit. §  Under Section 28 -‐ can order division of enterprise enjoying dominant position.

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COMPETITON ACT, 2002 – Appeal provisions

Competition Appellate Tribunal-‐ COMPAT • To hear and dispose of appeals against the specific order of the Commission.

• An appeal has to be filed within 60 days of receipt of the order / direction / decision of CCI.

Supreme Court of India • A person aggrieved with the direction, decision or order of the COMPAT can appeal to the Supreme Court of India within 60 days from the date of communication of the direction, decision or order.

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Compe33on Act, 2002 •  Prohibits Anti-‐Competitive Agreements Section 3

•  Prohibits Abuse of Dominant Position Section 4

•  Regulates Acquisitions, Mergers and Combinations Section 5&6

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CASE POSITION: AT A GLANCE S. No.

Description No. of cases received u/s 19(1) (a)

Cases received from MRTPC

Suo-moto cases

Reference received from Statutory Authorities (u/s 21)

Reference received from Central/State Govt./Statutory Authority (u/s 19(1)(b)

Total

1. No. of Cases received

485 50 26 1 22 584

2. No. of cases referred to DG for investigation u/s 26(1)

184 29 26 - 13 252

3. No. of cases in which DG report received

135 29 12 - 4 180

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Suo-moto cases



Total

4. No. of cases in which DG report awaited

49 - 14 - 9 72

5. No. of cases decided/disposed off after DG’s Investigation report

110 28 9 - 4 151

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Suo-moto cases



Total

6. No. of cases closed u/s 26(2)

267 21 - 1 8 297

7. No. of Cases under consideration before the Commission

59 1 3 - 1 64

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Principal Substantive Areas - Anti-competitive agreements - Abuse of dominance - Regulation of combinations

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Agreements Section 2 (b) of the Competition Act, 2002 Includes any arrangement or understanding or action in concert,— (i) whether or not formal or in writing; or (ii) whether or not intended to be enforceable by legal proceedings

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Horizontal Agreements Section 3 (3) of the Competition Act, 2002 Horizontal agreements refer to agreements among competitors, i.e., agreements between two or more enterprises that are at the same stage of the production chain and in the same market.

�  The Act provides for the following four kinds of horizontal agreements, which are presumed to be anticompetitive �  directly/indirectly fixing purchase/sale price; �  limiting/controlling production, supply, markets, technical development and investment;

�  sharing of markets by geographical area, types of goods/services and number of customers

�  Tenders submitted as a result of joint activity or agreement. 22

CARTEL

• The Act defines ‘cartel’ as including “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, or, trade in goods or provision of services.

• The aforesaid agreements are, therefore, presumed to be illegal i.e. having appreciable adverse effect on Competition.

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A few illustra3ve Cases � Cement cartel case: Commission imposed a penalty of approx Rs.6000 Crore on 11 cement manufacturers, guilty of cartelizing the Indian cement industry. Commission, among other things, considered the oligopolistic nature of the cement industry, price-‐parallelism and the role of the Cement Manufacturers Association in facilitating such collusion.

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A few illustra3ve Cases � LPG cylinder manufacturers case: (Suo Moto Case) Bidders quoted identical price in the tender for procurement of LPG cylinders. CCI imposed a penalty of Rs. 165.58 Crore upon each of the contravening party @ 7% of the average turnover of companies . COMPAT sent back case to CCI.

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A few illustra3ve Cases…. �  A Foundation for Common Cause & People Awareness Case Collusive tendering in the tender floated for supply, installation, testing and commissioning of Modular Operation Theatre evident by commonality of mistakes. The Commission imposed a penalty of Rs. 3 Crore upon each of the contravening party (5% of the average turnover of the company.) However, COMPAT reduced the penalty to 3% of the average turnover.

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A few illustra3ve Cases…. �  In Aluminum Phosphide Tablets Manufacturers, (Suo Motu Case) Tender for procurement of Aluminum Phosphide Tablets by Food Corporation of India. The Commission found the collective action of identical bids, common entry in the premises of FCI before submission of bids as indicative of ‘plus’ factors is support of existence of an understanding among the parties. Imposed penalty of Rs. 317.91 Crore (9% of the average turnover of the company) COMPAT reduced the penalty to 10.01 Crore.

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A few illustra3ve Cases…. •  In Bengal Chemist and Druggist Association & Ors.-‐CCI imposed a total penalty of Rs 18.35 crores (on 79 parties) on Association and its office bearers who were directly responsible for running its affairs and played lead role in decision making @10% and on the executive committee members @7%, of their respective turnover/ income.

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Ver3cal Agreements Section 3 (4) of the Competition Act, 2002 Any agreement amongst enterprises or persons at different stages or levels of the production chain in different markets , in respect of production , supply, distribution, storage, sale or price of, or trade in goods or provision of services, including:

�  Tie-‐in arrangement �  Exclusive distribution agreement �  Exclusive supply agreement �  Refusal to deal �  Resale price maintenance

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A few illustra3ve Cases � Shamsher Kataria Vs. Honda Siel Cars India Ltd & Ors Clauses in agreements requiring authorized dealers to source spare parts only from the manufacturers or their approved vendors is anti-‐competitive in nature and restricting access of independent repairers to spare parts and diagnostic tools and by denying the independent repairers access to repair manuals violated Sections 3 and 4 of the Act. Imposed penalty of 2% of total turnover in India of the opposite parties (Rs. 2544.65 Crore)

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A few illustra3ve Cases � Mr. Ramakant Kini Vs Dr. L.H. Hiranandani Hospital-‐ it is the market of stem cell banking in which competition was being adversely affected among stem cell bankers and the free trade was not being allowed and the patients were being fleeced of not only choice but also money. Imposed penalty of Rs. 3.8 Crore (4% of the average turnover of OP hospital)

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Intellectual Property and Compe33on Law •  Section 3 (5) of the Competition Act, 2002 •  Exception regarding reasonable conditions, necessary for protecting any of the following Intellectual Property Rights

•  Copyright •  Patent •  Trade mark •  Geographical indicators •  Industrial designs •  Semi-‐conductor Integrated Circuits Layout Designs

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Abuse of Dominance Section 4 of the Competition Act, 2002 The Act mandates that no enterprise or group shall abuse its dominant position and provides for situations in which the conduct of a dominant firm would be treated as contravention of Section 4 of the Act.

Dominance: means a position of strength, enjoyed by an enterprise, in the relevant market, in India, which enables it to— (i) operate independently of competitive forces prevailing in the relevant market; or (ii) affect its competitors or consumers or the relevant market in its favour

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Abuse of Dominance There shall be an abuse of dominant position if an enterprise or group �  Directly or indirectly imposing unfair purchase or selling prices

including predatory prices �  Limits production, markets or technical development to the

prejudice of the consumers �  Indulges in action resulting in the denial of market access; �  Making contracts with supplementary obligations which have no

connection with the subject of such contracts; �  Using dominance in one market to move into or protect other

markets

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Abuse of Dominance Determination of relevant market

Determination of dominance

Determination of abuse of dominance

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A few illustra3ve Cases �  NSE-‐MCX Case – ‘stock-‐exchange case’ –

This was the first case decided by the CCI in which a penalty of Rs. 55.5 crore was imposed upon NSE for its abuse of dominant position in the stock exchange market by indulging into the practice of predatory pricing and also abusing its dominant position to protecting other relevant market.

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A few illustra3ve Cases �  DLF Case – ‘real-‐estate’ – In this case, the

CCI imposed a penalty of Rs. 630 Crore on a real-‐estate dominant player for abusing its dominant position and imposing unfair conditions on the sale of its service to its consumers. This order highlights the need for regulation in this sector which has been recently approved by the cabinet. The case is pending before Supreme Court of India

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A few illustra3ve Cases…… � Coal India case –As per Spot e-‐Auction Scheme 2007 a buyer had to pay penalty by way of forfeiture of EMD for non-‐lifting of coal after successful participation in the e-‐Auction without any corresponding liability upon CIL and its subsidiaries for failure to deliver coal in respect of accepted bids. Apart from issuing a cease and desist order, the Commission ordered modification of the terms and conditions of the Scheme suitably and imposed penalty of Rs. 1773.05 Crore .

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Regula3ng Combina3ons • Sections 5 & 6 of the Competition Act, 2002 • The Commission regulates combinations (acquisitions, control and mergers) if certain turnover and asset thresholds are met.

• If the combinations are causing appreciable adverse effect on competition, the mergers can be blocked or approved with some remedies.

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Parties i.e. (acquirer and target group jointly)

Combined Group (group to which target enterprise belongs post acquisition

Assets Turnover Assets Turnover

India I N R 1 5 0 0

Crore

I N R 4 5 0 0

Crore

INR 6000 Crore I N R 1 8 0 0 0

Crore

Worldwide

Including

India

USD 750

Million

(including at

least INR 750

Crore in India)

USD 2250

Million

(including at

least INR 2250

Crore in

India)

USD 3 Billion

(including at least

INR 750 Crore in

India)

USD 9 Billion

(including at

least INR 2250

Crore in India)

Exemption – Target entity with assets in India not exceeding Rs. 250 crore or turnover in India not exceeding Rs. 750 crore exempt

Forms �  Form I to be filed ordinarily �  Form II to be filed preferably when:

o  Horizontal overlap with combined market share of more than fifteen percent (15%) in the relevant market.

o  Vertical overlap with individual or combined market share of parties being more than 25% in the relevant market.

�  Form III to be filed for acquisition of public financial institutions, foreign institutional investors, banks or venture capital funds o  contract note issued by a stock broker confirming the trade cannot

be construed to be an investment agreement for the purposes of section 6(4) of the Competition Act, 2002 – GS Mace Holdings Limited

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Pre-‐merger consulta3on Enterprises may request for an informal verbal consultation seeking clarification about the filing of notice.

�  confidential

�  Opinions or views -‐ not be binding on CCI.

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A few illustra3ve Cases � Sun Pharma -Ranbaxy Merger - The Competition Commission of India (CCI) has given final clearance to Sun Pharmaceutical-‐Ranbaxy Laboratories merger, approving divestment of seven overlapping drugs of the two companies to Emcure Pharmaceuticals

�  Jet- Etihad Merger- first precedent in India where a penalty has been imposed on the acquirer for gun jumping i.e. failure to notify CCI of a proposed combination. Imposed penalty of Rs. One Crore on Etihad.

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Extraterritorial reach of Commission •  Section 32 of the Competition ACT, 2002 provides for acts taking place outside India but having an effect on Competition in India-‐ Effects doctrine.

•  The Proviso of Section 18 states the CCI may enter into any Memorandum or arrangement with the prior approval of the Central Government, with any agency of any foreign country in order to discharge its duty under the provisions of this Act.

�  CCI has signed MoUs with-‐ Russia, FTC and DOJ of United States of America, Australia, European Commission and Canada

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Career prospects in Compe33on Law Any professional with understanding of competition law is an asset for companies for deciding business strategies and their better implementation.

� Competition Commission of India � Competition Law division of law firms � Working with senior advocates/lawyers �  In-‐house law departments of big companies Indian & Multinational

� Research and think-‐tanks 45

School of Compe33on Law and Market Regula3on, IICA

Mandate: Capacity building in Competition Law & Market Regulation through its teaching and training programmes and interactive events such as workshops, seminars, roundtables for the officials from Govt. of India Ministries and Departments, regulatory bodies, public and private sector enterprises and practitioners of Competition Law including CCI

Internship: School offers internship to students and out of college young professionals (not in any job) in the areas of Economics, Statistics, Law, Business Management, Finance. (Monthly Honorarium : Rs. 10,000/-‐ ) (for further details visit our website www.iica.in)

Courses: �  One year LL.M. Course in collaboration with National Law University,

Delhi �  Certificate course in Competition law 2015 & �  Other customised short-‐term courses

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Economy & Finance

NILS Summer Law School Kochi - April 2015