Competition Act, 2002

Query 1: Objective/ Intention The MRTP (Monopolies & Restrictive Trade Practices Act, 1969 had become obsolete in certain respects in the lights of international economic developments relating to more particularly to competition laws and there is a need to shift the focus from curbing monopolies to promoting competition. A high Level Committee on Competition Policy was constituted by the Central Govt. which submitted its report on 22nd May, 2002. Accordingly the Competition Bill was introduced in the Parliament. The Competition Bill received the Presidents assent on 13Th January, 2002 and thus came on the statute book as THE COMPETITION ACT, 2002 (12of 2003).1 To fulfill the objectives of the Act, government established CCI with effect from October 14, 2003. The act provides for the establishment of CCI , to achieve the following goals:

Prevent practices having adverse effect on competition; Promote and sustain competition in the market; Protect the interests of consumers; and Ensure freedom of trade carried on by participants in markets.

For achieving the abovementioned goals, the act prohibits the following: Anti-Competitive agreements These are agreements between entities in respect of production, supply, distribution, storage, acquisition or control of goods or provisions of services, which cause or are likely to cause an appreciable effect on competition within India. Commonly these agreements are entered into with the following objective:
o

o o

Determining prices; o Limiting and controlling production, supply, markets, technical development, investment or provisions for services; Allocating market; and Bid rigging or Collusive bidding. Such an agreement need not be in writing and can be at any level of production or sale. It may be a horizontal agreement (eg. Cartels) at the same level of production/supply or it may be a Vertical Agreement. Following are some of the most common examples of anti-competitive agreements:
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Bare Act: Introduction

o o o o o o o o

Agreement to limit production & supply Agreement to allocate markets Agreement to fix price Bid rigging or collusive bidding Conditional purchase/sale (tie-in arrangement) Exclusive supply/distribution arrangement Resale price maintenance Refusal to deal Abuse of dominant position Dominant position means a position of strength enjoyed by an enterprise in the relevant market in India which allows it to:

o o

Operate independently of competitive forces prevailing in the relevant market; or Affect its competitors or consumers or the relevant market in its favour. However, dominance per se is not considered bad by the statute. Its the abuse of this position of dominance that is prohibited. That statute lays down an exhaustive list of actions which will be considered to be abuse of dominance. These are:

Imposing unfair or discriminatory condition or price in purchase or sale of goods or services; or Limiting or restricting: o production of goods or provision of services or market therefore; o technical or scientific development relating to goods or services to the prejudice of consumers. o Indulging in practices which amount to denial of market access. o Making unrelated supplementary obligations a condition precedent for entering into a contract. o Using the dominant position in one relevant market to enter into or protect its position in another relevant market.

Regulation of Combinations Apart from prohibiting the above mentioned anti-competitive actions, the act also empowers CCI to regulate Combinations. Combination has not been defined in the act but includes the following, when they exceed the threshold limits specified in the act in terms of assets or turnovers:

Acquisition of controls, shares, voting rights or assets; Acquisition of control by a person over an enterprise where such person has control over another enterprise engaged in competing business; Merger or amalgamation between or amongst enterprises

Any entity which proposes to enter into a Combination has to notify CCI and seek its approval before entering the Combination. If CCI concludes that the proposed combination will cause or is likely to cause an appreciable adverse effect on competition within the relevant market in India, it can either prohibit it or propose suitably modification to the proposal.

Query 2 : Can foreign judgments be used as precedents to interpret Competition Act, 2002 ? Foreign court precedents may be referred to in Indian courts on the basis of certain principles set out below. As the Act is a new legislation and is still at its nascent stage, there are not many Indian Court precedents on this Act. It may be noted that the jurisprudence established under the MRTP Act and precedents thereunder are likely to be of limited assistance as the concepts under the MRTP act are very different from those under the Act. Therefore, in the evolution and development of Indian law on the subject it could be expected that references will be made and reliance placed upon on precedents from other jurisdictions where the laws are akin to the Act.2 In this respect, the Supreme Court of India has recognised the following principles: (a) Where there are no decisions of Indian High Courts or Supreme Court then interpretation of foreign Court on provision pari materia with our statutory provision will be persuasive and relevant3. Indian court will adjust and adapt, limit or extend, the principles derived from foreign decisions, suiting the conditions of our society and the country4; context of Indian laws, legal procedure and practical realities of litigation in India5. (b) Supreme Court is not bound by foreign (American) Court decisions and those decisions have only persuasive value - but the Court can borrow the principles laid down in foreign decisions, if the same are in consonance with Indian law keeping in view the changing global scenario.6 (c) When a legislature in India enacts a statute which closely resemble similar statute in England and both have the same purpose and object in view, then unless the expressions used in the Indian Statute is are defined, Courts of law cannot go wrong in interpreting the provisions in the way English Judges have done.7 It is undisputed that overseas judgments have tremendous persuasive values especially when the jurisprudence has not yet developed in India and the legislative intent of the Indian Competition Law is nearly identical to the International Competition Laws.

Query 3: Competition Act; in pari-materia closest competition legislation ?

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resemblance to which countrys

http://www.manupatrafast.com/articles/PopOpenArticle.aspx?ID=260e2974-c78f-4c3dbde7-d64e33a361ea&txtsearch=Subject:%20Commercial 3 Sterling General Insurance Co. Ltd. v. Planters Airways (P) Ltd.: (1975) 1 SCC 603 4 Hind Overseas (P) Ltd. v. Raghunath Prasad Jhunjhunwalla: (1976) 3 SCC 359 5 American Home Products Corporation v. Mac Laboratories : 1985: (1986) 1 SCC 465; Forasol v. ONGC: 1984 Supp (1) SCC 263 6 Liverpool & London S.P. & I Assn. Ltd. v. M.V. Sea Success: (2004) 9 SCC 512 7 Godhara Borough Municipality v. Godhara Electricity Co. Ltd.: AIR 1968 SC 1504

The Competition Act, 2002 is modelled on the Sherman Act, 1890; Federal Antitrust Act: Clayton Act and European Community Treaty; thus these are the basic sources of Competition Act, 2002. So for further modifications in the act the above said sources can be consulted. Section 3 of the Competition Act, which came into force only in May 2009, is the substantive provision in Indian competition law dealing with anticompetitive agreements or arrangements. This section prohibits any agreement in respect of production, supply, distribution, storage, acquisition, or control of goods or provision of services that causes, or is likely to cause, an appreciable adverse effect on competition in India. Any agreement or arrangement that infringes this prohibition is void. This provision is modelled on the EU competition law prohibition of anticompetitive agreements in Article 101 of the Treaty on the Functioning of the EU (TFEU) and is similar to Section 1 of the U.S. Sherman Antitrust Act of 1890 (the Sherman Act).8 Section 4 of the Competition Act, also effective from May 2009, is the substantive provision in Indian competition law dealing with abuse of a dominant position. This provision is modelled on the EU competition law prohibition of abuse of dominance contained in Article 102 of the TFEU and has some parallels with Section 2 of the Sherman Act.9

Question 4: Provisions of a statute must be construed in a manner that promotes the object of the statute; i.e. harmoniously construed
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http://www.lexology.com/library/detail.aspx?g=b2f74a2d-d4f4-4026-9c5b-5bc25f68da32 http://www.lexology.com/library/detail.aspx?g=b2f74a2d-d4f4-4026-9c5b-5bc25f68da32

The substantive provisions of the Competition Act, 2002 relating to (i) prohibition of anti competitive agreements and (ii) abuse of dominance have been notified. It is expected that the substantive provisions of the Competition Act with respect to regulation of combinations (mergers, amalgamations and acquisitions) will also be notified soon. Section 60 of the Act states that its provisions will override all other provisions contained in any law. However, Section 62 states that these provisions are in addition to and not in derogation of any other law. Thus, applying the principle of Harmonious Construction, where there is a direct conflict between the provisions of the Competition Act and any other law, the former will prevail, and where there is no conflict, provisions of both laws will apply together. But there are many areas of potential conflict between the provisions of the Competition Act and other Indian laws and regulations. Few such cases are discussed. Companies Act, 1956 Sections 391394 of the Companies Act, 1956 governs reconstructions and amalgamations of companies. The Companies Act requires the high court of appropriate jurisdiction to approve the merger and sanction the same which is said to usually take 4-6 months. However, the maximum time that can be taken by Competition Commission of India (CCI) under the Competition Act is 210 days, which can be extended further under certain conditions. This would mean that the CCI could legally utilise the maximum time period available to it, thereby further extending the time period within which mergers may be sanctioned by the various regulatory authorities. Thus, an issue that can arise on the concurrent review of the Companies Act and the Competition Act is that, the Competition Act empowers the CCI and Companies Act empowers the high court to make modifications to the scheme of merger/arrangement and a modification made by either of the regulators viz. CCI or high court would render the review undertaken by the other infructuous. Takeover Code The approval period of 210 days provided for in the Competition Act would impose additional financial obligations of the acquirer when the combination triggers open offer under the Indian Takeover Code. When the acquirer is unable to pay the shareholders participating in the open offer within 15 days from the date of closure of the offer owing to non-receipt of any statutory approval, the extension of time to make such payment is subject to the acquirer agreeing to pay interest to the shareholders for the delayed payment.

The Competition Act requires the CCI to prima facie opine on the proposed combination with a turnaround time of 210 days. Thus, legally the CCI is entitled to a time period of 210 days to form its opinion, which could obligate the acquirer to pay interest to the shareholders under most circumstances, if the two enactments are triggered simultaneously. Preferential Allotment Guidelines A practical difficulty arises in cases of preferential allotments that are governed by Chapter XIII of the Sebi (Disclosure and Investor Protection) Guidelines, 2000 commonly known as DIP guidelines which provides that preferential allotment needs to be completed within 15 days from the date of passing of the resolution. In case the allotment is pending regulatory approval, the same will have to be completed within 15 days of such approval. As mentioned above, the CCI is entitled to 210 days to approve/disapprove the combination. In such circumstances, the potential investor could be allotted shares at a price determined on the date which could be seven months older than the date on which allotment is made. Telecom Sector On the basis of TRAI's recommendations, the department of telecom (DoT) issued revised guidelines for intra-service area merger of cellular mobile telephone service/unified access services (CMTS/UAS or licenses). Thus, there is a possibility of an overlap of the regulatory framework between the DoT and the CCI. The Guidelines issued by the DoT provides that the combined market share of any merged entity shall not be more than 40%. The guidelines also provide that no merger shall be allowed if the number of service providers reduces to less than four in the relevant market. The DoT guidelines will be in addition to the provisions of the Competition Act, and any provision which is repugnant to the provisions of the Act will be redundant in light of Section 60 of the Act. It is important to note that transactions involving securities are highly price sensitive, and hence such transactions need to be consummated quickly. The inter-play of the Competition Act and other legislations governing combinations will significantly increase the transaction timelines potentially leading to a slowdown in M& A activity. Such issues will have to be closely scrutinized by the regulators such that Competition Act acts as a facilitator for businesses and not a show stopper.10

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http://economictimes.indiatimes.com/articleshow/4782067.cms: Authors: Abir Roy & Nishchal Joshipura, Nishith Desai Associates, Mumbai