Two of the main features of the Competition Act, 2002 is the framework it provides for the establishment of the Competition Commission, and the tools it provides to prevent anti-competitive practices and to promote positive competition in the Indian market.
Objectives of the Competition Act
The Act seeks to provide the legal framework and tools to ensure competition policies are met, to prevent anti-competition practices and provide for the penalisation of such acts. The Act protects free and fair competition which protects the freedom of trade.
The Act seeks to prevent monopolies and also to prevent unnecessary intervention by the government. The main objectives of the Competition Act, 2002 are:
• to provide the framework for the establishment of the Competition Commission.
• to prevent monopolies and to promote competition in the market.
• to protect the freedom of trade for the participating individuals and entities in the market.
• to protect the interest of the consumer.
Anti-Competitive Agreements
In simple words, Anti-Competitive agreements are agreements that are made by two or more companies competing in the same market to fix prices or reduce stocks etc, so as to manipulate the market favourably for them. This has the effect of the companies reducing the competition in the market which adversely affects the end consumer.
The Competition Act, 2002 defines anti-competitive agreements as such in section 3 where it states, “No enterprise or association of enterprises or individuals or association of individuals may enter into an agreement regarding production, supply, distribution, storage, acquisition or control of goods or provision of services which may adversely affect the competition in the Indian market”.
Such agreements are termed as AAEC agreement, which means the Appreciable Adverse Effect on Competition agreements. The Act expressly states that such an agreement shall be void. An AAEC agreement is classified as any agreements that result in:
• Directly affects purchase or sale prices.
• Indirectly affects purchase or sale prices.
• Limits production.
• Limits supply.
• Limits technical development.
• Limits service provision in the market.
• Leads to the rigging of bids.
• Leads to collusive bidding.
Abuse of Dominant Position
The abuse of the dominant position is prohibited by Section 4 of the Competition Act. Abuse of dominant position is defined under the second part of the same Section. According to the act dominant position means any enterprise that enjoys the position and power in the Indian market which enables it to:
• Operate independently of competitive forces in the relevant market.
• Affect its competition, consumer or the relevant market in its favour.
For example, predatory pricing is a practice that is seen to be an abuse of the dominant position. In simple words when a dominant enterprise engages in AAEC acts, it is considered an abuse of the dominant position.
The difference between the definition of anti-competitive agreements and abuse of dominant position is that in anti-competitive agreements there have to be two or more parties and it can be between any enterprise or firm and doesn’t require there to be a dominant firm involved. In abuse of dominant position, it can be done by a single party but the party has to be in a dominant position in the relevant market.
Remedies
Remedies against AAEC agreements and abuse of dominant position are provided by the Competition Commission of India. Upon a review and enquiry into the alleged practices the Competition Commission may pass the following orders:
• Direct the discontinuance of such practices.
• Impose a penalty that is less than 10% or the turnover of the preceding three financial years; in the case of a cartel, the penalty shall be 10% or three times the turnover of every financial year and shall continue for the period of continuance of such practices.
• Direct the modification of such an agreement or abuse so as to curtail its adverse effect upon the competition of the market.
• Pass any order that it may so deem fit.
Competition Commission
The Competition Commission of India is established under the Competition Act, 2002. It is a statutory body that has the power to govern and enforce the Competition Act including penalties. It was established when the need for a healthy competitive environment became necessary following liberalisation under the Vajpayee government.
The Commission is composed of a chairman and a minimum of 2 board members and a maximum of 6 board members. These members are required to have a minimum of 15 years of experience in their respective fields.
Its objectives, duties and powers are enumerated in the Competition Act, 2002. Its main duty and object is to ensure that the Indian markets maintain a healthy and fair competitive environment and is granted the power to ensure such an environment and penalise any acts adversely affecting its duties.
Regulation of Combination
The term combination has a broad definition under the Act, it includes:
• any acquisition of shares,
• voting rights,
• control of assets, and
• party to merger or amalgamation of enterprises.
Any person/enterprise shall not enter into a combination that is likely to have an adverse effect on the competition and such a combination will be void. If any person/enterprise proposes to enter into a combination he shall intimate the Competition Commission of India within 30 days of:
• Approval of the proposal relating to mergers and amalgamation by the Board of Directors of the enterprises involved in the process.
• Execution of any agreement pertaining to acquiring control.
Business Perspective
Business operations in India necessitate the knowledge of the various laws and regulations and also the implementation of the same. Competition in the market is a huge challenge that needs to be dealt with carefully.
It is essential for businesses to realize that although competition brings prosperity, thriving and striving shall be a continuous process. The various matters to be kept in mind by the business houses are:
• The markets are susceptible to the formation of cartels which pose a risk of formation of monopolies. The awareness of the fact that such associations are not permitted under the Competition Act, 2002 is essential.
• When discussions are made with competitors documentation of the same should be done.
• Any meetings wherein any matter is being discussed, which shall raise issues under the Competition Law shall be avoided.
• It is advisable to avoid discussions pertaining to price and the actual cost to the company.
• Appointment of an Ombudsman for advice on the Competition Law so as to prevent any legal issues may be done.
• Communication aspects although seem trivial may leave an impact when it comes to abuse of dominant position issues. Any statements made shall be weighed carefully.
The Competition Act, 2002 is a comprehensive law and the intent of the legislation is to promote fair competition, catch up with the global economy, safeguard the interest of the consumers and ensure a stable market for India.
