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Progression From MRTP Act To Competition Act

When The World At Large Is A Single Platform For Trade And Commerce

2Progression From MRTP Act To Competition Act

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OBJECTIVES OF THE ACT

Prevention of concentration of economic power

Control of monopolies

Prohibition of Monopolistic Trade Practices

Prohibition of Restrictive Trade Practices

Prohibition of Unfair Trade Practices

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MONOPOLISTIC TRADE PRACTICES (MTP):-

“Such practice indicates misuse of one’s power to abuse the market in terms of production and sale of goods and services.”

An MTP is likely to have any of the following effects:-

• Limiting or controlling;

• Unreasonably raising profits;

• Unreasonably increasing prices;

• Adopting unfair or deceptive methods

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RESTRICTIVE TRADE PRACTICES(RTP) :

• “ The traders, in order to maximise their profits and gain advantage in the market, often indulge in the activities that tend to block flow of capital in production.”

• Case let- HCCBPL

•Common types of RTPs are:-

o Refusal to Deal

o Tie- Up Sales

o Exclusive Dealings

o Price Discrimination

o Resale Price Maintenance

o Market Restriction

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UNFAIR TRADE PRACTICES(UTP) :-

• “A trade practice, for the purpose of promoting sale, use or supply of any goods or provision of services, adopts any unfair method or unfair or deceptive practice.”

• PRACTICES WHICH ARE UTPs AS PER THE ACT ARE:-

o False representation

o False offer or Bargain Price

o Offering of gifts, prize, etc., and conducting promotional

contests

o Product Safety Standards

o Hoarding or Destruction of goods

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NEED FOR SUBSTITUTION OF MRTP ACT BY COMPETITION ACT

• TRIGGER CAUSE

• RAGHAVAN COMMITTEE

o CHAIRMAN

o FORMATION

o REPORT

THE COMPETITION

ACT, 2002

Important Terms◘ "acquisition“ - directly or indirectly, acquiring or

agreeing to acquire—

Shares, voting rights or assets of any enterprise; or Control over management or control over assets of

any enterprise;

◘ "cartel” Association of Groups Objective: To Limit, attempt to control competition Example: Unilever and Procter & Gamble 

"relevant market“ - the market which may be determined by the Commission with reference to the relevant product market or the relevant geographic market or with reference to both the markets;

"relevant geographic market“ – a market comprising the area in which the conditions of competition for supply of goods or provision of services or demand of goods or services are distinctly homogenous and can be distinguished from the conditions prevailing in the neighboring areas;

"relevant product market“ - a market comprising all those products or services which are regarded as interchangeable or substitutable by the consumer, by reason of characteristics of the products or services, their prices and intended use.

Objectives of Competition Act, 2002

• Eliminate practices having appreciable adverse

effect on competition

• Promote and sustain competition

• Protect consumer’s interests

• Ensure freedom of trade carried on by other

participants in markets, in India

Benefits of Competition

Consumers:

o Wider choice of goods, services and suppliers

o Better quality and improved value for money

Businesseso Level playing field

o Redressal against anti competitive practices

o Competitively priced inputs

o Greater productivity and ability to compete in global markets

Governments (Central and State):

o Optimal realization from sale of assets

o Savings of public money in procurement

o Enhanced availability of resources for social sector

MAIN COMPONENTS OF COMPETITION ACT

◘ Anti-Competitive Agreements

◘ Abuse of Dominance

◘ Competition Commission of India

◘ Competition Advocacy

Anti-Competitive Agreements

•Section 3 – •the agreements which cause or are likely to cause appreciable adverse effect on competition ("AAEC") are anti-competitive agreements

•Case let: Eastern India Motion Pictures Association (EIMPA)

•Such agreements may be horizontal or vertical

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HORIZONTAL

Supplier

Manufacturer

Distributor

Retailer

Supplier

Manufacturer

Distributor

Retailer

Supplier

Manufacturer

Distributor

Retailer

VERTICAL

HORIZONTAL AND VERTICAL AGREEMENTS

Horizontal Agreements

Between enterprises at the same stage of the production

chain and that is generally between two rivals

Either fixing prices or for limiting production or for sharing

markets

Presumption in the Act that such agreements cause AAEC

Caselet: Indian Oil Corporation Ltd (IOCL) during 2011-12.

Directly or indirectly results in bid rigging or collusive bidding

Vertical Agreements◘ Between enterprises at different stages of the production

chain, like an arrangement between the manufacturer and a distributor

◘ There must be an agreement amongst enterprises or persons;

◘ The agreeing parties must be in different markets;

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◘ TYPES OF VERTICAL AGREEMENT:-• Tie-in arrangement

• Exclusive distribution agreement

• Exclusive supply agreement

• Refusal to deal

• Resale price maintenance

Abuse of Dominance If an enterprise or a group directly or indirectly, imposes

unfair or discriminatory:o condition in purchase or sale of goods or service; oro price in purchase or sale (including predatory price)

of goods or service Limits or restricts -

o production of goods or provision of services or market therefore; or

o technical or scientific development relating to goods or services to the prejudice of

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Uses its dominant position in one relevant market to enter into, or protect, other relevant market

Imposes unfair price in purchase or sale of goods (predatory price)

Combination

Combination Covers:-

◘ Acquisition of shares, voting rights, assets etc.

◘ Mergers

◘ Amalgamations

◘ Acquiring control over another enterprise in the same line

of business.

Requisites

◘ Proper information about the combination must be provided within 30days of approval by the board of directors.

◘ Filing should be done within 7 days of Acquisition

◘ The combination provides a post filing review period of 210 days during which no combination must come into effect.

Thresholds for combinationThe current thresholds for the combined assets/turnover of the combining parties are as follows:

IN INDIAAPPLICABLE TO ASSETS TURNOVER

INDIVIDUAL Rs.1500 Crores Rs.4500 Crores

GROUP Rs.6000 Crores Rs.18000 Crores

IN INDIA

AND

OUTSIDE

ASSETS TURNOVER

TOTAL Minimum

Indian

component

TOTAL Minimum Indian

component out

of TOTAL

INDIVIDUAL PARTY $750 mn Rs.750cr $2250 mn Rs.2250cr

GROUP $3bn Rs.750cr $9.billion Rs.2250cr

Exemptions from Reporting

◘ An acquisition of shares or voting rights in another enterprise- only investment no control

◘ Transfer from joint control to sole control (50%)

◘ An acquisition of stock–in-trade, raw materials, stores and spares in the ordinary course of business.

Exemptions from Reporting

◘ An acquisition of current assets

◘ Any acquisition of shares or voting rights by a person acting as a securities underwriter or a registered stock broker.

◘ An acquisition taking place outside India with insignificant effect in markets in India.

Amendments

◘ A company which owns >25% but <50% of shares or voting rights

in another enterprise, can acquire 5% more in a financial year

without giving any notice to CCI.

◘ Any acquisition that results in more than 25% voting rights

requires a notice to be given to CCI.

◘ An exception of "enterprise jointly controlled by enterprises that

are not part of the same group" has been added.

COMPETITION COMMISSION OF INDIA

Establishment◘ March 2009 ◘ perpetual succession and a common seal◘ Head office –decided by Central Government

Composition◘ Chairperson & Minimum 2 and maximum 6 other Members appointed by

the Central Government.◘ Eligibility ◘ whole-time Members.

Extension of the executive powers◘ Appointment Director General / others for assisting in conducting

enquiries.

PENALTIES Penalties For : Non compliance with the orders

Non compliance with the orders / non payment of fine

Non-furnishing of information on combinations

Making false statement or omission to furnish material information

Power to impose lesser penalty 

Crediting sums realized by way of penalties to Consolidated Fund of India

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ADVOCACY PROVISIONS IN THE COMPETITION ACT:

i) Enquire into Anti-Competitive Agreements (e.g. Cartel, bid-rigging, etc.);

ii) Enquire into abuse of dominant position (e.g. Predatory Pricing, etc.);

iii) Regulate combinations (Mergers / Amalgamation, Acquisition of shares or controls etc.)

COMPETITION ADVOCACY

CCI assumes the role of competition advocacy

foster conditions leading to competitive market

Develop relationship with the Ministries and Departments of the

Government

Encourage debate on competition and promote a better and more

informed economic decision making

Be open and transparent

Competition advocacy: Enhanced by establishing good media

relations

Promotion of Competition Advocacy

Undertake programs and activates for promotion of competition advocacy and create awareness in India as well as abroad

Constitute Advocacy Advisory Committee(s)

Develop and disseminate advocacy literature

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Proactive Interactions with the Central and State Governments, civil society – concerned with competition matters

The Commission may undertake studies and market research

May encourage academic and professional institutions to include competition law and policy

Difference between MRTP and Competition

FACTORS MRTP COMETITION

1] Time Pre Reforms Post Reforms

2] Objective Prevent concentration of economic powers

Prevent practices having an adverse effect on competition

3] Offences recognized Lists out 14 offences Lists out 4

4] Powers Cease and Desist orders Prevent and punish

5] Fund Did not provide for the formation of fund

Provides competition fund

6] Entity Status Status of dominant position is considered bad

Status of abuse of dominant position is considered bad

7] Registration General registration is mandatory

No such requirement

FACTORS MRTP COMPETITION

8] Role of the commission

Only Advisory Can initiate suomotu and levy penalties

9] Focus Consumer Interest Public

10] Appointment of Chairman

Central Government Committee consisting of retired judiciary, person with professional expertise etc.

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WORLD NOT A SINGLE PLATFORM FOR TRADE

AND COMMERCE

World Not A Single Platform For Trade And Commerce

World Trade Organization (WTO) promotes global multilateral free tradeTrade Barriers: tariffs, quotas, and nontariff barriers and Trading Blocks exist. Hamper open Free Trade, curb competition and try to create monopolies. Major Trading Blocs

oASEAN (Association of Southeast Asian Nations)oEuropean Union (EU)oNAFTA (North American Free Trade Agreement)oSAARC (South Asian Association for Regional Cooperation)

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Anti-Trust laws in United States of America and European Union

EUROPEAN COMPETITION/ ANTI-TRUST LAW

Introduction

Antitrust :

The two central rules set out in Functioning of the European Union.

First, agreements between two or more independent market operators which restrict competition are prohibited.

Second , it  prohibits firms holding a dominant position on a determined market.

Cartel : The leniency policy encourages companies to hand

over inside evidence of cartels to the European Commission

Mergers : Harm consumers through higher prices, reduced choice

or less innovation. The objective - prevent harmful effects on competition. Examines the mergers if the annual turnover of the

combined businesses exceeds specified thresholds in terms of global and European sales.

Liberalization : Opening of the services such as transport, energy, postal

services and telecommunications to competition. Benefits- lower prices New/Alternative services (more efficient and consumer-

friendly than before. This helps to make economy more competitive.)

State Aid : Prohibited unless it is justified by reasons of general

economic development. Role of European Commission is of ensuring that

State aid complies with EU rules.

International :

The integration of national economies also enables companies to organize cartels and other anti-competitive practices on an international or even global basis.

Cooperation with other competition authorities takes place at two levels:

1. Bilateral

2. Multilateral

US Antitrust Law US Antitrust Law—aka competition law

Originated from trusts in US in 1800s which were set up in the US in the late 1800s to control entire markets for petroleum, transport, banking, rail and other industry sectors.

Trusts undermined free market economics by restricting competition, and the US antitrust laws were enacted to redress this issue.

Antitrust laws composed of – widely drafted antitrust statutes – given meaning through case law.

THE TWO PRINCIPLE ANTITRUST OFFENCES

1. Monopolization• Monopolization itself • Attempted monopolization • Conspiracy to monopolies.

2. Conspiracy to restrain trade• conspiracies to retain trade itself • “per se” restraints of trade

A third offence, “abuse of dominant position.”• It is not forbidden under US antitrust laws expressly, it is

nonetheless part of the competition laws of the EU and Canada and can therefore affect US businesses who function internationally.

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Conclusion

The competition Act 2002, was passed to benefit the consumer, business houses as well as the government.

It was passed to foster economic development of the country to establish the commission, project the interest of the consumer and to ensure freedom of trade in markets.

The main aim of this act was to encourage healthy and free competition in the market.

World is not the single platform for trade and commerce.

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Case Study

CCI imposes Penalty of Rs. 62.31 Crores on Three Companies for Forming a Cartel in a Tender for Indian Railways

Mr. K. Madhusudhan Rao V/s M/s Lodha Healthy Constructions & Developers Private Limited

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