Around 105 countries have competition law. It is also known as anti-trust law.
The history of competition law is usually traced back to the enactment of Sherman Act in 1890 in the US.
Like any modern competition law, Indian Competition Act, 2002 concentrates majorly on three areas:
(i) anti-competitive agreements,
(ii) abuse of dominance; and
(iii) merger control.
(i) anti-competitive agreements:
Any agreement (written or verbal) that restricts competition is anti-competitive agreement. Even an informal agreement to behave in market in a certain way, say restricts production / supply, fix prices or sharing markets will be hit by provisions of competition law.
Anti competitive agreements can be between players of same category, say between rivals. It may be in the form of cartel. It is also referred to as horizontal agreements. In such cases, in India, it is presumed that such horizontal agreement is having “appreciable adverse effect on competition” and hence void and liable for penal action under the law. To detect horizontal agreements like cartel, generally leniency or amnesty programs are followed by regulators across the globe. In India, section 46 of the law provides for the same and it does empower the Competition Commission to reduce or waive the penalty. However, there are no criminal sanctions for cartelization under the Competition Act, 2002.
Further, Anti competitive agreements can be between producers and suppliers / distributors. By such agreements ‘control’ is exercised over raw material or access to market / entry barriers. These are also referred to as vertical agreements. In India, such agreements are declared void if it has “appreciable adverse effect on competition”. It needs to be proved and is not presumed as in horizontal agreements.
Section 3 of the Competition Act distinguished between horizontal and vertical agreements. Anti-competitive agreements are declared to be void.
In case of cartel, monetary fines can be upto 10% of turnover of each member, for each year of continuation of Cartel or 3 times of profits of each member, whichever is higher.
(ii) abuse of dominance:
‘Dominance’ can be defined as the ability of the firm to raise prices or reduce output or do both, independently of its rivals and consumers (to undestand, say in case of monopoly). In order to establish abuse of dominance or dominant position, it is first necessary to establish the dominance itself.
Dominance of enterprises can be in the relevant market, which can be demarcated on the basis of the relevant product market (i.e. substitute products or services) and the relevant geographic market (i.e. neighboring areas or territories from which products can be supplied profitably at little above the current prices to the area under inquiry).
Section 4 of the Competition Act deals with abuse of dominance. It presumes five types of abuses including, discriminatory /unfair pricing, predatory pricing or unfair conditions of sale/purchase, limits or restricts production or scientific development, denial of market access, make contracts conditional to unconnected supplementary obligations and use of dominant position in one market for entry in another. Section 4 prohibits such behaviour.
In such cases, injury or harm is not required to be proved. Only dominance needs to be proved, after considering various factors, economic as well as non-economic, stated in the Competition Act itself.
Once dominance is established and if the the dominant firm is found to be indulging in any of the five kinds of behaviour specified under section 4(2) of the Competition Act, such behaviour is presumed to be an abuse.
(iii) merger control:
Indian Competition Act, 2002 uses the term “combinations” to cover acquisition of control, shares, voting rights and assets, and mergers and amalgamations.
The underlying logic is that it is much easier to stop a combination that is likely to undermine competition than to deal with the situation subsequently, after the damage has been done (which could have been prevented in the first place). Competition Commission can either approve, stop (deny approval) or modify conditions of combinations.
Generally any combination giving market power (control product or geography), say combination of substitute products, likely to give dominance and hence normally are not approved.
Combinations can be classified into three categories:
(a) horizontal combination – i.e. merger of competitors.
(b) vertical combination – i.e. merger of entities in supply chain – say manufacturer of final product acquiring raw material supplier; or merger of manufacturer and distributors.
(c) conglomerate combinations – i.e. where the combining parties are in unrelated businesses and usually do not raise competition concerns.
Competition Act control merger by prescribing mandatory prior approval of Competition Commission of India.It also covers within its ambit, combinations taking place outside India, if it has nexus in India.
The Competition Act, 2002 provides thresholds both in terms of assets as well as turnover of entities involved in combination. The threshold limits in the Indian law are relatively higher than most jurisdictions.
P. K. Pandya & Co. provides advisory and appearance service under Competition Act, 2002.
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