Competition Law India

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TABLE OF CONTENTS

SR. NO. PARTICULARS

1. Prefatory Items

1.1 Topic and team members

1.2 Acknowledgement

1.3 Table of Contents

2. Introduction

3. MRTP ACT

4. Need for Competition Act

5. Limitation of MRTP Act

6. Competition act U.S context

7. Competition act South Africa context

8. Objectives of Competition Act

9. Composition of Commission

10. Amendments

11. Advantages of Competition Act


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12. Shortcomings of Competition Act

13. Case Study JET SAHARA

14. Case Study L&T GRASIM

15. Case Study NETSCAPE & MICROSOFT

16. Comparison

17. Critical Comments

18. Conclusion

19. Bibliography

GLOBAL COMPETITION AND COMPETITION ACT

Economic reforms in India were supposed to usher in a market-oriented economy in contrast to

the regime of licenses and controls that characterized the economy in the past. The fulcrum of a

market economy is competition. However, the ability of competition and the market economy to

enhance consumer welfare and to allocate resources optimally hinges on the proper functioning

of markets. Both in theory and practice the ill effects of improperly functioning markets have


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been highlighted. Developed economies, like the U.S. and the U.K. have institutions to oversee

markets and attempts made to reduce competition. In India the Monopoly and Restrictive Trade

Practices Act also had a similar aim, but it was drawn up in the old regime and was unsuitable.

The Competition Act has now replaced it and a competition commission has been set up. Since

the competition commission is yet to start functioning this is a good time to deliberate on its

functions and the nature of competition policy that ought to be adopted.

Economic Developments and Competition Policy

Two major economic forces are shaping the world economy as we move into the third

millennium: globalization and innovation. "Globalization" is the growing economic and political

integration and interdependence of countries as a result of trade, investment, movement of

persons and the dissemination of knowledge. Multinational enterprises have been at the centre of

this globalization process. These seemingly denationalized and borderless corporations,

encouraged by recent advances in transportation and communications technologies, have begun

to outsource the manufacture and assembly of selective non-core components of their complex

products to affiliates and strategic allies across national borders, thereby taking advantage of the

new trade environment sweeping the globe. The business sectors of most industrialized countries

have thus internationalized their activities, resulting in an intricate web of linked activities

around the world.

Todays knowledge-based economy, although still in its infancy, is proving to be fast-paced and

spurred by product, technology and organizational innovation. Anecdotal evidence is all around

us: product lifecycles are becoming shorter and shorter all the time; new, largely computer-

assisted technologies resulting from the digital microprocessing revolution are proliferating in all

aspects of business from the factory giants to the local corner store; and lean production

techniques, which promote specialization in core competency activities while outsourcing from

strategic allies, are reorganizing the marketplace.

The government policy responses to these developments, in the form of trade liberalization

efforts and the deregulation and privatization of utilities, have made the Canadian economy more

competitive.


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For example, the Canada-United States Free Trade Agreement (FTA) has played a significant

role in raising the productivity and competitiveness of the Canadian manufacturing sector over

the past decade by forcing industry to rationalize plants and operations and to exploit economies

of scale further. Innovations in telecommunications and energy technologies and systems have

eliminated any general notion of "natural monopoly," and resulted in deregulation and open

competition where once only government or regulated private monopolies dominated the

commercial landscape.

These new business models exert new pressures on the business sector and are beginning to

reveal new stresses and fracture points in the competition policy framework. For instance,

greater cross-border trade may also mean more international anticompetitive conduct. As a

result, competition authorities must respond by further cooperating with one another.

A knowledge-based, innovation-driven economy is a dynamic economy, one that is characterized

by numerous new products, technologies and production processes, and even new industries.

Barriers to entry into the more mature industries can be knocked down and competition can

sometimes flourish where it has never been seen before. Market dominance also appears to be

more short-lived than in any previous time. However, across all industries technological change

is apparently driving down the costs of production with the result that the typical firms cost

structure more frequently exhibits substantial increasing returns to scale. Allegations of

predatory behaviour are likely to mount in this new economic environment and the related

provisions of the Competition Actwill come under increased pressure and scrutiny.

Innovative products will often be accompanied by an intellectual property right and there is an

interface there that must be looked at more closely:

The policy and enforcement interfaces between intellectual property and competition policies are

complex; however, clear borderlines must be drawn between competitive and anticompetitive

conduct. These economic developments also pose new challenges to the competition authority.

Competition and Competition Policy Interplay


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The interplay between competition, on the one hand, and competition policy and law, on the

other hand, is interesting. Witnesses made it clear from the outset that: "Competition is a means

to an end. The reason we have competition is to deliver the best products at the best prices for the

people who buy them. As a result, "the best protection for consumers is a free and open market,

with as few barriers to new competitors coming in as possible, whether theyre regulatory,

ownership, trade, whatever types of barriers". However, unfettered competition alone is not

enough. A complementary competition policy is required in circumstances where, owing to

technological or regulatory barriers, competition will not automatically and immediately flourish.

While competition and competition policy are complementary, they are not perfect substitutes

when regulatory barriers intervene.

However, competition policy can be at best partially corrective. In this case, "competition law

alone is not sufficient to ensure the vitality of the competitive process. Occasionally competition law

can offset some of the negative effects of these types of restrictions. More frequently, however, it

cannot. Indeed, trying to twist competition law so as to accommodate an

anticompetitive regulatory environment is likely to compromise and even corrupt competition law. Bad

regulation begets bad competition law.


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Limiting technical development or capital investment to the common detriment or allowing the

quality of any goods produced, supplied or distributed, or any services rendered, in India to

deteriorate;

Increasing unreasonably:

- the cost of production of any goods; or

- charges for the provision, or maintenance of any services;

Increasing unreasonably:

- the prices at which goods are, or may be, sold or re-sold, or the charges at which the services

are, or may be, provided; or

- the profits which are, or may be, derived by the production, supply or distribution(including the

sale or purchase) of any goods or in the provision or maintenance of any goods or by the provision of

any services:

Preventing or lessening competition in the production, supply or distribution of any goods or in

the provision or maintenance of any services by the adoption of unfair methods or unfair or

deceptive practices.

Example for MTPs:

In the US Microsoft was using its monopoly in operating system to secure monopoly in the internet

explorer market. Microsoft is supplying its internet browser with Windows 98. This destroyed the

market of Netscape Browser. An Antitrust case was launched against Microsoft which it lost and the

court has ordered division of the company in one dealing in operating systems and the other in

applications.

2)Restrictive Trade Practices (RTPs)

A restrictive trade practice is generally one which has the effect of preventing, distorting or restricting

competition. In particular, a practice which tends to obstruct the flow of capital or resources into the

stream of production is an RTP. Likewise, manipulation of prices, conditions of delivery or flow of supply

in the market which may have the effect of imposing on the consumer unjustified costs or restrictions


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are regarded as restrictive trade practices. But competition is not always a necessary touchstone on

which a trade practice is judged if it is a RTP. Certain common types of restrictive trade practices

enumerated in the Act which do not have an element of competition and are deemed legally to be

prejudicial to public interest.

Examples of RTP are:

a) Deficiency in Insurance Services as in not settling insurance claim on flimsy and/or untenable grounds

for a long time in deficient service.

b) Insisting that the customers should collect gas refills from its godown instead of effecting

homedelivery service which imposes extra unjustified cost on the customer.

c) Wide variations in prices in different regions unrelated to freight cost is RTP as it distorts the

competition between different regions.

3) Unfair Trade Practices (UTPs)

Sec 36A defines UTP as a trade practice, which 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.


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NEED OF COMPETITION ACT IN INDIA

The globalized and liberalized Indian economy is witnessing cut-throat competition. To provide

institutional support to healthy and fair competition, there is a requirement of better regulatory

and adjudicatory mechanism. To this effect, India has enacted the new competition law which

shall replace the earlier law. This is a shift from curbing monopolies to encouraging competition. The

design of the new law carves out a very important role for the Competition Commission of India

(CCI). The task has been divided in three phases. This article sets out to explain the intricate

relationship of competition law and judiciary in India by examining the experience CCI had so far. The

article then goes on to examine the role of lawyers. The article then considers the time frame for

the implementation of the three phases and provides realistic suggestions to have a successful

setting of competition regime in India.

Introduction

In the pursuit of globalization, India has responded by opening up its economy, removing controls and

resorting to liberalization. The natural corollary of this is that the Indian market should be geared

to face competition from within the country, and outside. To take care of the needs of the

trading, industry and business associations, the Central Government decided to enact a law on

competition. Finance Minister, Chidambaram (2003) highlighted the need to have a strong legal

system and said A world class legal system is absolutely essential to support an economy that aims to


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be world class. India needs to take a hard look at its commercial laws and the system of dispensing

justice in commercial matters. With this zeal the Government went ahead and enacted the

Competition Act, 2002.

The Earlier law and the need for change

It would be interesting to turn the pages of history and see how the earlier law, which is still in

force, was enacted. In 1964, when the Indian democracy was in its nascent stage barely 17 years old

the Government of India appointed the Monopolies Inquiry Commission to inquire into the extent

and effect of concentration of economic power in private hands and the prevalence of

monopolistic and restrictive trade practices in important sectors of economic activity other than

agriculture. The Commission submitted its report alongwith The Monopolies and Restrictive

Trade Practices Bill, 1965, which was later passed by both the Houses of Parliament and received theassent of the President on December 27, 1969. It came into force on June 1, 1970 as the

Monopolies and Restrictive Trade Practices Act, 1969. The Statement of Objects and Reasons

mentioned that the Act was to provide that the operation of the economic system did not result in the

concentration of economic power to the common detriment, for the control of monopolies, for the

prohibition of monopolistic and restrictive trade practices and for matters connected therewith and

incidental thereto.

Since 1970, the Act had been amended several times to suit to the changing circumstances.

However, of late, particularly after the economic reforms of early 1990s, it was felt that the

MRTP Act had become obsolete in certain respects in the light of international economic

developments relating more particularly to competition laws and there was a need to shift focus

from curbing monopolies to promoting competition. The MRTP Act was beyond repair and could

not serve the purpose of the new competitive environment. A new law (Indian Competition Act)

may be enacted, the MRTP Act may be repealed and the MRTP Commission wound up. The

provisions relating to unfair trade practices (UTP) need not figure in the Indian Competition Act as

they were covered by the Consumer Protection Act, 1986. The pending cases in the MRTP

Commission may be transferred to the concerned Consumer Courts under the Consumer

Protection Act, 1986. The pending MTP (Monopolies and Restrictive Practices) and RTP (Restrictive

Trade Practices) cases in the MRTP Commission may be taken up for adjudication by the Competition


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Commission of India (CCI) from the stages they were in.

THE COMPETITION ACT, 2002

An Act to provide, keeping in view of the economic development of the country, for theestablishment of a Commission to prevent practices having adverse effect on competition, to

promote and sustain competition in markets, to protect the interests of consumers and to ensure

freedom of trade carried on by other participants in markets, in India, and for matters connected

therewith or incidental thereto. It extends to the whole of India except the State of Jammu and

Kashmir

THE FRAMEWORK OF THE COMPETITION BILL IN INDIA:

The preamble of the Competition bill states that it is a law to foster and maintain competition in

the Indian Market to serve consumer interest while protecting the freedom of economic action of

various market participants and to prevent practices which affect competition, and to establish a

commission therefore.

This law replaces the age-old MRTP act. The MRTP act had two parts, one, the restriction of

monopoly, and the other the curtailing of restrictive trade practices. While the restriction of

monopoly implied that no firm could expand beyond a certain limit of investments, and artificial

efforts at raising prices or restricting supply in a market in such a way so as to get a price above

the one that market would be prepared to pay under normal circumstances.

Thus the emphasis of competition bill is more on consumer freedom and freedom of economic

activities rather than control and elimination of monopolies the different chapters deal with the

length and breadth of this law.

Limitations of MRTP Act- 1969 ( NEED FOR COMPETITION ACT)

1) Command and Control Policy absolute:

In the period following Independence of India, the policy of the government was more of Command

and Control of economic growth in the country. Hence laws, rules , regulations were framed in

accordance with the same. However, with change in economy, the law had to be amended.


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In 1980, the government, with an Industrial Policy statement gave many concessions to companies

falling under MRTP Act- an important concession was raising limit for MRTP companies from Rs 20 crore

to Rs 100 crore at one stroke

In December 1985, government permitted unrestricted entry of large industrial house falling underMRTP, to freely take-up manufacture of 83 items. MRTP firms (i.e. companies having assets above Rs

100 crore} would be considered on par with other companies and not require prior approval in

delicensed industries.

The 1991 amendment to the Act deleted the concept of MRTP Company and repealed almost all

provisions relating to their expansion.

The fact that the Act has been amended several times since 1969in1980, 1982, 1984, 1985, 1986,

1988, 1991 shows that there are many lacuna in it and that it needs to be replaced altogether by a

new comprehensive law.

2) Growth Objective:

The policy of the government right since Independence, has been to pursue industrial growth without

concentration of industries in the hands of a few. However, the legislation to control concentration of

industries was enacted in 1969, nearly 20 years after launching planned economic development.

Within 3-4 years, the enthusiasm of government diluted as can be seen from the relaxations granted for

expansion and growth of large companies/business houses on a variety of grounds such as priority

industries, location in backward areas, exports etc. In the 1970s especially, government has seen the

conflict between objectives of rapid growth and prevention of concentration of economic power in

private hands, and government has openly given priority to growth objective.

3) Failed to cover all Aspects:


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With liberalization, came WTO agreements, relation to Foreign Investment, Intellectual Property Rights,

subsidies, anti-dumping measures. MRTP Act does not cover these aspects. Hence there was a need of

a new law covering all these aspects.

4) Lack of Awareness about the Act:

The Provisions relating to unfair trade practices are covered by consumer protection Act, 1986, which is

highly publicized. Hence people in general, are more aware of it than the MRTP commission which is

situated only in New Delhi, and hence is not accessible to many. The Consumenr Protection Commision

are more easily accessible.

5 )Does not prohibit restrictive and unfair trade practices:

MRTP does not impose any penalties on unfair trade practices. Hence business houses/traders take

advantage of this situation. Hence a need arises to impose penalties to deter industries from unfair

trade practices.

6) Lack of independent powers:

It did not have powers to impose penalties for breach of its directives. Its chief investigator, the DG(I&R)

did not have powers to even enforce attendance of a witness.

7) MRTP Act provides for Registration of agreements as compulsory & has powers only to pass "Cease

and Desist" orders. It did not have any other powers to prevent or punish, it was rigidly structured and is

based on pre reforms scenario.

CASE STUDY which shows Failure of the MRTP Act


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The Vitamins Cartel and the MRTP Commission

Several leading and sophisticated drug manufacturers, of the world, have been involved in a global

conspiracy to fix prices of bulk vitamins, sales volume and allocate markets. This international vitamin

cartel continued from 1990 to 1999, and was investigated by the authorities in the US, EU, Australia,Canada, Japan, etc. Heavy fines were levied on the companies found to be guilty. Subsidiaries of most of

these companies are present in developing countries also, including India. The additional cost for

developing countries, due to this cartel, is estimated to be US$3bn1 . Nevertheless, no competition

authority from developing countries, except Brazil, has investigated or handled this case. The Indian

experience is an example of this. Keeping in view the international character of this cartel, it was

obvious that it must also have had adverse effects in India. These companies, in all probability, would

have been engaged in such practices in the country, either through direct sales or by way of exports. The

estimated cost imposed by the cartel, on India, was about US$25mn, over the 1990s. To find out more

about this, CUTS decided to start a case. As a first step in this direction, all the relevant information on

the cases, accumulated by several authorities around the world, was collected from the internet and

then documented. This information included details of the company, details of the investigation, the

judgement and the balance sheets of some of these companies during the relevant period. Letters were

written to the CEOs of these companies in India asking them to give a written undertaking to the effect

that they did not engage in any such anti competitive practice in India. Responses were received from

Hoffman La Roche and BASF India Ltd.,stating that they have not engaged in such practices but no

response came from Rhone Poulenc Ltd, which incidentally, was the approver in the US investigation

and had escaped punishment. Being a consumer organisation, CUTS had limited ability and hence it

passed the collected information to the Director General Investigation & Registration) with a request for

further investigation into the matter. The DG passed on the information to the MRTPC and became the

complainant CUTS was given the status of informant. On direction of the MRTPC, the DG conducted a

preliminary investigation and submitted its Preliminary Investigation Report (PIR). On the basis of the

PIR, the MRTPC held that no case can be made and CUTS was informed accordingly. CUTS wanted to get

a copy of the PIR in order to see what kind of investigation was done. But the DG said that the copy

could be obtained only from the MRTPC, while the Commission said only the DG had the authority to

issue it. This clearly showed the lack of awareness about the law in the competition authority. Finally,

the case was heard in the court and it was held that the law clearly states that the informant does not

have a right to get a copy of the PIR. To conclude, the way the competition authority worked is very

obvious. The kind of investigation done seems rather weak and no body knows what was actually done.


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The matter has come to an end as far as MRTPC is concerned but CUTS intends to get to the bottom of

the matter, so that in future such type of difficulties do not exist.

Source : CUTS (2003), Pulling Up Our Socks - A Study of Competition

COMPETITION LAW IN CONTEXT OF OTHER COUNTRIES

COMPETITION LAW US CONTEXT

In US competition law is expressed in the form of antitrust law. The historic goal of the antitrust

laws in the U.S is to protect economic freedom and opportunity by promoting competition in the

marketplace. Competition in a free market benefits American consumers through lower prices,

better quality and greater choice. Competition provides businesses the opportunity to compete on

price and quality, in an open market and on a level playing field, unhampered by anticompetitive

restraints. Competition also tests and hardens American companies at home, the better to succeed

abroad.

ANTITRUST ENFORCEMENT AND THE CONSUMER IN THE U.S

The first set of competition (antitrust) laws were enacted among the western industrialized

countries towards the end of the last century. The pioneers were Canada (1889) and the United

States (1890). It is interesting to observe that a hundred years later, several developing and

transition market economies are embracing competition laws. Since 1990 alone, at least 30 such

countries have adopted new laws, or have substantially revised their existing laws. These include

virtually all of the former communist-centrally planned economies in Central and Eastern

Europe, and the Former Soviet Union. Several other countries are in the process of following

suit.


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Antitrust laws protect competition. Free and open competition benefits consumers by ensuring

lower prices and new and better products. In a freely competitive market, each competing

business generally will try to attract consumers by cutting its prices and increasing the quality of

its products or services. Competition and the profit opportunities it brings also stimulate

businesses to find new, innovative and more efficient methods of production.

Consumers benefit from competition through lower prices and better products and services.

Companies that fail to understand or react to consumer needs may soon find themselves losing

out in the competitive battle.

When competitors agree to fix prices, rig bids or allocate (divide up) customers, consumers lose

the benefits of competition. The prices that result when competitors agree in these ways are

artificially high; such prices do not accurately reflect cost and therefore distort the allocation of

society's resources. The result is a loss not only to U.S. consumers and taxpayers, but also to the

U.S. economy.

When the competitive system is operating effectively, there is no need for government intrusion.

The law recognizes that certain arrangements between firms -- such as competitors cooperating

to perform joint research and development projects -- may benefit consumers by allowing the

firms that have reached the agreement to compete more effectively against other firms. The lawdoes not condemn all agreements between companies, only those that threaten to raise prices to

consumers or to deprive them of new and better products.

Thus, according to the Antitrust law when competing firms get together to fix prices, to rig bids,

to divide business between themselves or to make other anticompetitive arrangements that

provide no benefits to consumers, the government will act promptly to protect the interests of

American consumers.

The U.S government takes a number of actions to promote a competitive environment:

1.Breaking up monopolies: Relying on the Sherman Act, the government may sue to break up a

corporation that has attained a monopoly or near monopoly in an industry. In 1911, the

government broke up Standard Oil of New Jersey (which controlled over 90 percent of the


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refining and sales of petroleum products) into 30 independent corporations. In 1982, AT & T,

after being sued by the government agreed to be broken into 23 independent local telephone

companies. These operating companies became seven regional phone companies offering local

telephone service. The long-distance service, Western Electric and Bell Laboratories were

retained in the corporation that kept the name AT & T. Other suits by the government have been

less successful. The courts refused to breakup U.S. Steel in 1920. The government also was

unsuccessful in breaking up IBM in 1982.

2. Preventing monopolies from arising: The government seeks to keep corporations with

economic power from engaging in practices that are designed to minimize or eliminate

competition. Such practices include bundling and tying arrangements, price discrimination, and

price fixing. In the 1990s, a number of legal suits against such practices have been brought;however, winning such cases in court is difficult. Nintendo of America, the dominant video-

game maker, successfully defended an antitrust action brought by Atari Corporation. Microsoft

agreed to share information about its Windows operating system with software developers and to

stop requiring PC manufacturers to pay license fees for Windows on all units shipped (whether

or not Windows was installed). The 1998 suits brought by the Justice Department against

Microsoft and Intel is yet to be resolved.

Illegal predatory pricing occurs when a large company sets price below cost in order to drive

smaller companies out of competitions are driven out. (Companies do not reenter since they

know that entry will lead to another round of price-cutting). The problem for courts is to

distinguish predatory pricing from virtuous price competition. In 1993, the United States

Supreme Court cleared Brown and Williamson Tobacco Corporation of predatory pricing

charges brought by the Brook Group, a rival seller of generic cigarettes. The court raised the

standard for proving predatory pricing, requiring proof that the accused company deliberately

priced at a loss, that this behavior had a reasonable chance of driving rivals out of business, and

that the accused would profit as a result. Although American Airlines was cleared of predatory

pricing charges in the early 1990s, antitrust authorities were conducting new investigation in

1998, alleging that large airlines routinely slashed prices and added extra flights on routes where

discount airlines began offering service.


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3.Preventing mergers that reduce competition: The government also has acted to prevent

mergers in which the results would be a monopoly or near-monopoly position or in which the

merger would significantly reduce competition. In 1962, the government successfully sued to

prevent the merger of brown Shoe and Kinney Shoe, respectively the fourth and eight largest

manufacturers of shoes at the time. The effect of the merger was likely to foreclose other

manufacturers from using Kinney as a retailer. In 1964, the government successfully sued to

prevent the merger of the second largest producer of metal containers with mergers of the second

largest producer of metal containers with the third largest producer of glass containers. The

Clinton administration has closely scrutinized and blocked a number of mergers. Subject to

minor conditions, regulators blocked proposed mergers of staples and office Depot (office supply

superstores) and Rite-Aid and Revco (prescription drug suppliers) and Microsofts acquisition of

into it (maker of Quicken financial software), on the basis of economic evidence that reduced

competition would result.

4.Preventing collusion: Firms need not be monopolies to exercise monopoly power. Firms can

form cartels and collaborate to reduce output and increase price. Such cartels have the same

effect on social welfare as do monopolies, and such behavior is illegal. Price fixing (in which

corporations jointly decide what price to set) also is illegal. In 1927, the court found that the

maker of toilets has acted illegally when they met to fix prices and limit quantities. More

difficult is the problem of price fixing when there is no explicit agreement to do so. Even absent

an agreement, the court may find "conscious parallelism," that is, a situation in which all

producers act in the same way at the same time while being aware that other producers are doing

likewise.

In the 1990s, the government successfully challenged the practice of Ivy League universities

meeting and exchanging information on planned tuition increases, faculty salaries, and financial

aid polices. In 1996, the giant agribusiness firm Archer Daniels Midland pleaded guilty to fixing

the price of citric acid ( a food additive) and paid a $100 million fine. In 1997, thirty brokerage

firms paid $900 million to settle claims that they fixed prices.

Antitrust law is a large and complex field. A typical case may last as long as a decade. There are

provisions for enforcement not only by the government but also by private citizens. Both the


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Sherman Act and the Clayton Act allow private parties who are injured by anticompetitive

behavior to bring suit for damages. If successful, the suing party receives three times the value of

the actual injury.

Antitrust policy in the 1990s:In the 1990s the Justice Department and the Federal Trade

Commission have taken pragmatic approaches to antitrust regulation. American antitrust policy

was born in opposition to the great wave of mergers and consolidations at the close of the

nineteenth century. The original philosophy of the trustbusters was that market dominance and

monopoly was bad in and of themselves. Until the 1960s, the government prevented the merger

of two Los Angels grocery chains that shared just 8 percent of the local market). However, by

the 1970s, and 1980s, the Chicago School approach had assumed dominance in the antitrust

arena. According to this school, the forces of free market competition are far more effective atlimiting monopolies than government regulators. Absent prohibitive barriers to entry, a firms

market power would only be temporary. High profits would attract new entrants attenuating the

monopolists power. Following this approach, the Reagan and Bush administrations used their

antitrust powers sparingly

COMPETITION POLICYSOUTH AFRICAN CONTEXT

In certain cases, markets are not usually competitive: they are often dominated by big supplierswho use their sheer market power to determine the forms of the market; this has adverse and

detrimental consequences on the consumers. Market can be defined as either a product market or

a geographic market. Market power can be abused in the product market as well as the

geographic market. Because of imperfect competition in the market, national governments

around the world intervene in the market economy by drafting and implementing competition

policy. Some of the reasons and objectives for government interventions are:

1. To respond to market failures.

2. To limit abuse of market power

3. To preserve and stimulates the operations of competitive market

4. In certain situation, to limit foreign participation of foreign capital in order to create and

cultivate domestic industry


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There are two types of government intervention. The first type is behavioral and the second,

structural:

1. Behavioral intervention is when the government through a public authority attempts to

transform the behavior of one firm or group of firms through effective regulation of their

activities. Examples of this are interconnection deals, price regulation or the prohibition of

collusive practices.

2. Structural intervention focuses on the market structure of the industry. Examples are the

intervention to prevent a merger of two major telecom companies; a network operator may be

required to separate its operations into distinct corporate entities.

Two of the ways to do this is to set up an economy wide competition regulator and/or create an

industry specific regulator that implements policies and manages competition in a particular

sector. An economy wide competition authority uses competition law to regulate all sectors in an

economy or country. A sector-specific regulator regulates one sector of the economy. While

some countries such as New Zealand has long had economy-wide competition law with no sector

specific regulator, others like South Africa has the two structures: a telecommunications

regulator and a competition commission.

OBJECTIVES OF THE COMPETITION ACT

Objects to be achieved & Salient Features of the New Competition Regime:

The Competition Act has been designed as an omnibus code to deal with matters relating to the

existence and regulation of competition and monopolies. Its objects are lofty, and include the

promotion and sustenance of competition in markets,

protection of consumer interests and ensuring freedom of trade of other participants in the market, all

against the backdrop of the economic development of the country. However, the Competition Act is

surprisingly, compact, composed of only 66 sections. The legislation is procedure-intensive, and is

structured in an uncomplicated manner. The raison detre of the Competition Act is to create an

environment conducive to competition. The various Objectives of the Act are as follows


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I. To check anti-competitive practices

II. To prohibit abuse of dominance

III. Regulation of combinations.

IV. To provide for the establishment of Competition Commission of India (CCI), a quasi-judicial body to

perform below mentioned duties:

Prevent practices having adverse impact on competition

Promote and sustain competition in the market

Protect consumer interests at large

Ensure freedom of trade carried on by other participants in the market

Look into matters connected therewith or incidental thereto.

I] ANTI-COMPETITIVE AGREEMENTS :

A scan of the competition laws in the world will show that they make a distinction between horizontal

and vertical agreements between firms. The former, namely the horizontal agreements are those among

competitors and the latter, namely the vertical agreements are those relating to an actual or potential

relationship of purchasing or selling to each other. . Most competition laws view vertical agreements

generally more leniently than horizontal agreements as horizontal agreements are more likely to reduce

competition than agreements between firms in a purchaser - seller relationship. For example an

agreement made between enterprises dealing in the same product or products. Such horizontal

agreements, lead to unreasonable restrictions of competition and are therefore presumed to have an

appreciable adverse effect on competition.


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The following diagram helps in understanding the scheme provided under section 3 of the Competition

Act, 2002.

Section 3 of the Act, states that:

(1) No enterprise or association of enterprises or person or association of persons shall enter

into any agreement in respect of production, supply, distribution, storage, acquisition or control of

goods or provision of services, which causes or is likely to cause an appreciable adverse effect on

competition within India.

(2) Any agreement entered into in contravention of the provisions shall be void.

(3) Any agreement entered into between enterprises or associations of enterprises or persons of

associations of persons or between any person and enterprise or practice carried on, or decision taken

by, any association of enterprises or association of persons, including cartels, engaged in

Identical or Similar Trade of goods or provision of services, which

(a) directly or indirectly determines purchase or sale prices;

(b) limits or controls production, supply, markets, technical development, investment of provision

of services;

(c) shares the market or source of production or provision of services by way of allocation of

geographical area of market, or type of goods or services, or number of customers in the market or any

other similar way;

d) directly or indirectly results in bid rigging or collusive bidding, shall be presumed to have an

appreciable adverse effect on competition.

Bid Rigging or Collusive Bidding:


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It is an illegal agreement between two or more competitors. It is a form of price fixing and market

allocation and involves an agreement in which one party of a group of bidders will be designated to win

the bid.

E.g. Government construction contracts.

Cartelization and sharing of territories:

The adverse effects of cartels or collusive agreements vary in degree depending on the nature of the

companies involved. It is the hard core cartels that are the cause of immediate concern for the

government. Agreements for sharing of markets or sources of production/supply by territory, type, size

of customer or any other way are also offensive. It includes an association of producers, distributors,

sellers, traders, or services providers who, by agreement amongst themselves, limit, control or attemptto control the production, distribution, sale of price of, or, trade in goods or provision of services.

Provided that nothing contained in this sub-section shall apply to any agreement entered into by way of

joint ventures if such agreement increases efficiency in production, supply, distribution, storage,

acquisition or control of goods or provision of services.

Eg : Case on DGIR v/s Srichankra Tyres :

DGIR files a case against Srichankra Tyres as the Association of lorry owners was fixing freight rates

and not allowing members of association to charge price lower than that fixed by association to charge

price lower than that fixed by association.

This is a typical case of Cartelling where a group of players come together and by agreement

amongst themselves limit or control trade, production, sale or purchase of goods and provision of

services.

(4) 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.


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(5) Nothing contained in this section shall restrict

(i) the right of any person to restrain any infringement of, or to impose reasonable conditions, as

may be necessary for protecting any of his rights which have been or may be conferred upon him

under

(a) The Copyright Act, 1957

(b) The Patents Act, 1970

(c) The Trade and Merchandise Marks Act, 1958 (43 of 1958) or the Trade Marks

Act, 1999

(d) The Geographical Indications of Goods (Registration and Protection) Act, 1999

(e) The Designs Act, 2000

(f) The Semi-conductor Integrated Circuits Layout-Design Act, 2000

(ii) The right of any person to export goods from India to the extent to which the agreement relates

exclusively to the production, supply, distribution or control of goods or provision of services for such

export.

2]ABUSE OF DOMINANT POSITION:

The concept of dominant undertaking prevailing in the MRTP Act has been discarded. Dominant

Position has been appropriately defined in the Act in terms of the 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 itscompetitors or consumers or the relevant market, in its favour.

At this point it is worth mentioning that the Act does not prohibit or restrict enterprises from coming

into dominance. There is no control whatsoever to prevent enterprises from coming into or acquiring

position of dominance. All that the Act prohibits is the abuse of that dominant position. The Act


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therefore targets the abuse of dominance and not dominance per se. This is indeed a welcome step, a

step towards a truly global and liberal economy.

Dominant position is abused when an enterprise imposes unfair or discriminatory conditions in purchase

or sale of goods or services or in the price in purchase or sale of goods or services.

According to section 4 of the act:

(1) No enterprise shall abuse its dominant position.

(2) There shall be an abuse of dominant position under sub-section (1),

if an enterprise.-

(a) Directly or indirectly, imposes unfair or discriminatory

condition in purchase or sale of goods or service; or

price in purchase or sale (including predatory price) of goods or service,

For the purposes of this clause, the unfair or discriminatory condition in purchase or sale of goods or

service referred to in sub-clause(i) and unfair or discriminatory price in purchase or sale of goods

(including predatory price) or service referred to in sub-clause (ii) shall not include such discriminatory

condition or price which may be adopted to meet the competition; or

(b) Limits or restricts

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

technical or scientific development relating to goods or services to the prejudice of consumers; or

(c) Indulges in practice or practices resulting in denial of market access; or

(d) Makes conclusion of contracts subject to acceptance by other parties of supplementary obligations

which, by their nature or according to commercial usage, have no connection with the subject of such

contracts; or


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(e) Uses its dominant position in one relevant market to enter into, or protect, other relevant market.

III] REGULATION OF COMBINATIONS:

The Act is also designed to regulate the operation and activities of Combinations, a term which

contemplates acquisition, mergers, take overs or amalgamations. Thus, the operation of the

Competition Act is not confined to transactions strictly within the boundaries of India but also such

transactions involving entities existing and/or established overseas. Herein again lies the key to

understanding the Competition Act. The intent of the legislation is not to prevent the existence of a

monopoly across the board. There is a realisation in policy-making circles that in certain industries, the

nature of their operations and economies of scale indeed dictate the creation of a monopoly in order to

be able to operate and remain viable and profitable. This is in significant contrast to the philosophy,

which propelled the operation and application of the MRTP Act, the trigger for which was the existence

or impending creation of a monopoly situation in a sector of industry

The Act mandates that No person or enterprise shall enter into a combination which causes or is likely

to cause an appreciable adverse effect on competition within the relevant market in India and such a

combination shall be void.. The Act has made the pre-notification of combinations voluntary for the

parties concerned. However, if the parties to the combination choose not to notify the CCI, as it is not

mandatory to notify, they run the risk of a post-combination action by the CCI, if it is discovered

subsequently, that the combination has an appreciable adverse effect on competition. There is a rider

that the CCI shall not initiate an inquiry into a combination after the expiry of one year from the date on

which the combination has taken effect. Combination that exceeds the threshold limits specified in the

Act in terms of assets or turnover, which causes or is likely to cause an appreciable adverse impact on

competition within the relevant market in India, can be scrutinized by the Commission

Acquisition, merger or amalgamation would become Combination when:

Nature of Combination Group Status Criterion Value

(a) Acquisition by enterprises No Group Assets In India World

over

>Rs. 1,000 Cr.

>US$500 million


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(b)Acquisition by individuals Turn over In India World

over

>Rs. 3,000 Cr.

>US$1500 million

Mergers/ amalgamation Group Assets In India World

Over

>Rs. 4,000 Cr.

>US $ 2 Billion

Turn over In India World

over

>Rs. 12,000 Cr.

>US$ 6 Billion

Threshold limits that would invite the scrutiny are specified below:

For acquisition:

Combined assets of the firm more than Rs 3,000 crore (these limits are US $ 500 millions in case

one of the firms is situated outside India).

The limits are more than Rs 4,000 crore or 12,000 crore and US $ 2 billion and 6 billion in case

acquirer is a group in India or outside India respectively.

For mergers:

Assets of the merged/amalgamated entity more than Rs 1,000 crore or turnover more than Rs

3,000 crore (these limits are US $ 500 millions and 1,500 millions in case one of the firms is

situated outside India).

These limits are more than Rs 4,000 crore or Rs 12,000 crore and US $ 2 billions and 6 billions in

case merged/amalgamated entity belongs to a group in India or outside India respectively.

Further, such combination, which causes or is likely to cause "appreciable adverse impact" on

competition, would be treated as void.


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A system is provided under the Act wherein at the option of the person or enterprise proposing to enter

into a combination may give notice to the Competition Commission of India of such intention providing

details of the combination. The Commission after due deliberation, would give its opinion on the

proposed combination to approach the Commission for this purpose. However, public financial

institutions, foreign institutional investors, banks or venture capital funds which are contemplating

share subscription financing or acquisition pursuant to any specific stipulation in a loan agreement or

investor agreement are not required to approach the CCI for this purpose.

Competition Advocacy :

Perhaps one of the most crucial components of the Act is competition advocacy . Competition advocacy

creates a culture of competition.

Intention is to help evolve competition law through review of policy, promotion of competition

advocacy, creating awareness and imparting training about competition issues. For this purpose In line

with the High Level Committee's recommendation, the Act extends the mandate of the Competition

Commission of India beyond merely enforcing the law (High Level Committee, 2000).

The Regulatory Authority under the Act, namely, Competition Commission of India (CCI), is enabled to

participate in the formulation of the country's economic policies and to participate in the reviewing of

laws related to competition at the instance of the Central Government. The Central Government can

make a reference to the CCI for its opinion on the possible effect of a policy under formulation or of an

existing law related to competition. The Commission will therefore be assuming the role of competition

advocate, acting pro-actively to bring about Government policies that lower barriers to entry, that

promote deregulation and trade liberalisation and that promote competition in the market place.

IV] COMPETITION COMMISSION OF INDIA:

The apex body under the Competition Act which has been vested with the responsibility of eliminating

practices having an adverse effect on competition, promoting and sustaining competition, protecting

the interest of the consumers, and ensuring freedom of trade carried on by other participants in India, is

known as the Competition Commission of India (CCI) --- the successor to the MRTP Commission. CCI,

entrusted with eliminating prohibited practices, is a body corporate and independent entity possessing a

common seal with the power to enter into contracts and to sue in its name.The CCI is not merely a law

enforcement agency, but would be actively involved in the formulation of the countrys economic


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policies, advise the government on competition policy, take suitable measures for the promotion of

competition advocacy and create awareness and imparting training about competition issues.

Composition of Commission

The Commission shall consist of a Chairperson and not less than two and not more than ten other

Members to be appointed by the Central Government: Provided that the Central Government shall

appoint the Chairperson and a Member during the first year of the establishment of the

Commission.

The Chairperson and every other Member shall be a person of ability, integrity and standing and

who, has been, or is qualified to be, a judge of a High Court; or, has special knowledge of, and

professional experience of not less than fifteen years in international trade, economics, business,

commerce, law, finance, accountancy, management, industry, public affairs, administration or in any

other matter which, in the opinion of the Central Government, may be useful to the Commission.

The Chairperson and other Members shall be whole-time Members.

Jurisdiction

An enquiry or complaint could be initiated or filed before the Bench of CCI if within the local limits of its

jurisdiction the respondent\s actually or voluntarily resides, carries on business or works for personal

gain, or where the cause of action wholly or in part arises.

CCI has been vested with the powers of a civil court including those provided under sections 240 and

240A of the Companies Act, 1956 on an "Inspector of Investigation" while trying a suit, including the

power to summon and examine any person on oath, requiring the discovery and production of

documents and receiving evidence on affidavits. CCI is also vested with certain powers of affirmative

action to act in an expedited manner. Civil courts or any other equivalent authority will not have any


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jurisdiction to entertain any suit or proceeding or provide injunction with regard to any matter which

would ordinarily fall within the ambit of CCI.

Exclusions from Jurisdiction:

- Reasonable Rights under IPRs, etc. protected under Competition Act.

- Agreements exclusively for exports exempted

Acts taking place outside India:

CCI has the power to enquire into unfair agreements or abuse of dominant position or combinations

taking place outside India but having adverse effect on competition in India, provided that any of the

below mentioned circumstances exists:

An agreement has been executed outside India

Any contracting party resides outside India

Any enterprise abusing dominant position is outside India

A combination has been established outside India

A party to a combination is located abroad. Any other matter or practice or action arising out of such agreement or dominant position or

combination is outside India.

To deal with cross border issues, CCI is empowered to enter into any Memorandum of Understanding or

arrangement with any foreign agency of any foreign country with the prior approval of Central

Government.

Powers of CCI:

The CCI will have the following powers:

To issue "Cease and Desist" Orders:

To grant such interim relief as would be necessary in each case.


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To award compensation.

To impose fines on the guilty.

To order division of dominant undertaking.

Power to order de-merger.

Power to order costs for frivolous complaints

In addition to the adjudication function, the CCI will have the roles of advocacy, investigation,

prosecution and merger control.

The Statutory Regulatory Authorities can make reference to CCI for advice.

The proposed Law provides for the post of Director Genral (and a host of his deputies in various places)

to assist the Competition Commission in its inquiries. Unlike in MRTP Act, the Director General will not

have powers to initiate investigations suo motu.

Extension of the executive powers

The Act contemplates the extension of theexecutive powers of CCI by the appointment of a Director

General and as many other persons for the purpose of assisting it in conducting enquiries into

contraventions of the provisions of the Act as well as conducting cases before the Commission.

Penalties:

In case of failure to comply with the directions of CCI and Director General or false representation of

facts by parties, penalties ranging from Rs 1lac to Rs 1 crore may be impSSosed as the case may be.

Execution of the order

So far the execution of the order is concerned, it is the responsibility CCI. However, in the event of its

inability to execute it, CCI may send such order for execution to the High Court or the principal civil

court, as the case may be.

POST-DECISIONAL OPTIONS:


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The aggrieved person may apply to CCI for review of the order within thirty days from the date of the

order, provided that the below mentioned conditions are fulfilled:

An appeal is allowed by this Act

No appeal has been preferred

Provision has been made for an appeal against any order or decision of CCI by any aggrieved persons.

An application for this purpose has to be made to the Supreme Court within sixty days from the date of

communication of the decision or order.

Amendments in the Competition Act :

In March this year the government put forward the Competition (Amendment) Bill 2006, which has

been referred to the parliamentary standing committee on finance. The bill proposes to amend no

less than 42 of the 61 sections of the Competition Act, replacing 13 and deleting 5 sections in their

entirety, and introducing about 21 new sections. These changes not only attempt to address the

Supreme Courts objections, but also modify several of the substantive provisions of the act dealing

with anti-competitive practices.

Proposals of the amendment

1. A change proposed in Section 12 increases from one year to two years the cooling-off

period for which the chairman and members of the CCI are debarred from accepting

employment with any (private) enterprise that has been party to any proceedings before it.

2. Amendments to Sections 19 and 26 allow the CCI to act on information received, not just a

formal complaint.

3. There is a statement added to Section 32, explicitly allowing the CCI to pass orders against

acts of firms outside India that adversely affect competition in India. The original phrasing

seemed to suggest that the CCI could only inquire into such acts.

4. The bill also proposes to delete the ill advised clause that allowed the CCI to issue temporary

injunctions to restrain any party from importing goods.

5. The CCI has not been given powers of search and seizure, which are crucial in obtaining

evidence in cartel cases in Europe and the US, and are even available in Section 12(5) of the

outgoing MRTP Act.


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6. Section 21 of the act is to be amended so that when the CCI is asked by a statutory authority

to give its opinion on any decision that might infringe the Competition Act, the authority is

now required to record its response to the CCI opinion.

7. Section 49, which allowed the central government to seek the CCIs opinion on formulating a

policy on competition, is now to be extended to state governments.

Another measure is in the transition arrangements for dealing with cases pending before the

MRTP Commission(MRTPC). The Competition Act originally envisaged their immediate

transfer to the CCI. The new bill sensibly proposes to give the MRTPC two years to clear the

backlog, so the CCI can concentrate on the Competition Act. But no change is proposed in the

clauses transferring ongoing investigations for these MRTP cases to the CCI

Additional proposals

1. Establishment of a Competition Appellate Tribunal (CAT) to hear appeals against the orders of

the CCI and adjudicate compensation claims arising out of the finding of the CCI or orders of

the tribunal.

2. Age limit of chair person and other members restricted to 65 years.

ADVANTAGES OF THE COMPETITION ACT:

1) The foremost objective of the act is to create an environment conducive to competition. The

act does not condemn or oppose the existence of a monopoly in the relevant market.

2) The operation of the act is not confined to transactions strictly within the boundaries of India

but also such transactions involving entities exixting or established overseas.

3) Explicit definitions and criteria have been specified in order to access whether a practice has

an appreciable adverse effect on competition.

4) It is the intention of our legislators that provisions of the act in its extant form should not be

considered to be immutable and unchangeable.The intention is promotion of competition

advocacy,creating awareness and imparting training about competition issues.


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SHORTCOMINGS OF THE COMPETITION ACT:

1) It is a body to which the appeals lie and not an investigative agency that proactively goes and

seeks out industrial monopolistic practice. As the executive body is contemplated at present,

it is likely to be a haven for senior bureaucrats, businessmen and technocrats enjoying

positions of sinecure.

2) There is a lack of mandatory provision compelling persons or entities whether public or

private to approach the commission that is compounded by the corresponding logistical

limitations of the commission to be able to take cognizance on its own motion of every

malpractice in the economy.

3) The IPR laws have overriding powers over the Competition Act in matters related to

competition abuses.

4) The act provides for exemptions to mergers and abuse of dominance on grounds like

economic development and public interest and in the absence of any clear

definition/criteria the relevant provisions would be open to varying interpretations.

5) The provisions in context of the autonomy of the CCI mainly aim at keeping a check on CCIs

functioning by limiting its independence.

CASE STUDY

1)JET SAHARA


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Merger With Air Sahara

On January 19, 2006 Jet Airways announced that it was to buy Air Sahara for $500 million in an

all-cash deal. Everything, including Sahara's assets and infrastructure, would belong to Jet Airways. This

deal would have been the biggest in India's aviation history and the resulting airline the country's

largest, had it gone through.

Market reaction to the deal was mixed, with many analysts suggesting that Jet Airways was

paying too much for Air Sahara. The deadline for the deal to be completed was June 21, 2006, but in the

days before this, the chances of the takeover being completed began to look shakier. Jet Airways

claimed that a final sticking point was the government's delay in approving Jet chairman Naresh Goyal's

appointment to the Air Sahara board. Air Sahara countered that Jet Airways had engineered this

impasse by delaying the request for such approval, as a way of extricating themselves from a deal they

now regretted. Jet was said to be willing to go ahead with the deal only if the originally agreed price was

lowered by 20-25% on the basis of Air Sahara's mounting debts, an option which was firmly rejected by

Air Sahara. Finally both sides confirmed that the deal was off. Following the failure of the deals, the

companies have now filed lawsuits seeking damages from each other.

L&T AND (Grasim) BIRLA

The Take-Over

The takeover of L&T shares was a complicated process involving L&T demerging its cement business

into Ultra Tech Cemco and Grasim making an open offer for it. The stakes were transferred between
http://en.wikipedia.org/wiki/January_19http://en.wikipedia.org/wiki/2006http://en.wikipedia.org/wiki/Air_Saharahttp://en.wikipedia.org/wiki/Naresh_Goyalhttp://en.wikipedia.org/wiki/Naresh_Goyalhttp://en.wikipedia.org/wiki/Air_Saharahttp://en.wikipedia.org/wiki/2006http://en.wikipedia.org/wiki/January_19


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employee and family trusts in a dizzying 3-layered share transaction, ending with Grasim holding the

majority stake. All sections of shareholders -- FIs and small shareholders -- participated in the open offer.

A Different Perspective on the Deal

A little more than three years ago management consulting firm Boston Consulting Group advised that

the Rs. 8,000-crore (Rs. 80-billion) engineering company L&T should exit cement. BCG's prescription is

being followed and the Rs. 2,200 crore (Rs. 22 billion) deals were finally sealed . Grasim will own 51.5

per cent stake in L&T's 16.5 million tonne cement business, which is to be hived into a new company.

L&T's 16.4 million tonne capacity is now being combined into Grasim's own 14.5 million tonne

capacity. There are serious financial implications.

The Rs. 4,000-odd crore (Rs.40 billion) acquisition costs (including the Rs. 1,860 crore debt liability)will start yielding respectable returns only after three years.

The cement acquisition now catapults Kumarmangalam Birla to top of the heap in the country's 31

million tonne per annum (tpa) combined cement capacity. He is also the seventh largest cement

producer in the world.

What's more, Grasim now becomes the world's largest cement producer in a single geography. So

what was initially a pure financial investment with 10.5 per cent of L&T in November 2001-- when it

bought out Reliance Industries' stake in the company -- became a rallying point to get full management

control.

By the first week of January, Grasim came back to the table with an "alternative proposal". It

entailed Grasim swapping its 15 per cent stake in the parent L&T with the 40 per cent stake held by the

financial institutions in the cement company. Thus, it would be left with a clean, indisputable 55 per

cent stake in the cement company while making an honourable exit from the core company.

Future of UltraTech Cement:

UltraTech's distribution network is very widely spread out in the country with over 5,500 dealers and

30,000 retailers. UltraTech enjoys a leadership position in all of the markets that it serves. The Company

has enlisted the support of all of its business associates. This includes dealers, stockiest, retailers,

builders and engineers among others.


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Between UltraTech and Grasim, the Aditya Birla Group's cement capacity is in excess of 31 million

tpa, of which 17 million tpa capacity comes from UltraTech. This makes the Aditya Birla Group the eighth

largest cement player in the world.

The Group now has 11 composite plants, seven split grinding units, four bulk terminals (inclusive ofone in Sri Lanka), and eight ready mix concrete plants. This accords the Group a strong national presence

in the cement sector, with a leadership position in several states.

India has enormous potential for growth, given the lower per capita consumption of only 110 kilos

against the global average of 260 kilos at present. The per capita consumption of cement in India is

perhaps the lowest in South East Asia. In Thailand it is 293 kilos, China 429 kilos, Malaysia 529

kilos, and in South Korea 951 kilos. India thus offers a tremendous growth opportunity given its lower

per capita consumption.

The shareholding pattern of UTCC is 51 per cent with Grasim, 12 per cent with financial institutions,

11.5 per cent with L&T and the remaining with institutional and retail shareholders.

The transaction has created value for Grasim and L&T stakeholders, the share prices of L&T and

Grasim since the June 2003 announcement of the intention of de-merger, have out-performed the BSE

Sensex and there has been an overwhelming response to the open offer.

Grasim Industries is Indias largest cement maker with a capacity to make about 33 million tonnes a

year, a shade larger than its nearest rival, the Holcim-Gujarat Ambuja-ACC combine, which makes about

31 million tonnes. Mr. Birla also outlined an ambitious expansion programme for UltraTech. The

companys capex plans include an expenditure of around Rs 1,424 crore to be spent over the next three

years. Of this, Rs 844 crore is for captive power plants in Gujarat and Chhatisgarh. The company also

wants to tap the growing cement market in southern India and is scheduled to invest Rs 1,274 crore for

a 4-million tonne plant in Andhra Pradesh. This also includes 1.3 million-tonne split grinding unit and a

46-MW power plant.

The governments initiatives on infrastructure development and the boom in the housing sector are

major growth drivers for the cement industry. The Indian cement sector is the worlds second-largest

after China.In the medium term, the demand and supply situation is expected to be in a state of balance,

before the next cycle of new capacity enters the market.


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NETSCAPE V/S MICROSOFT

Netscape Communications, a division of AOL Time Warner, filed suit against Microsoft claiming that the

software giant's business practices crushed the onetime upstart's Internet browser.

The lawsuit alleges that, beginning in 1995, Microsoft harmed Netscape in a series of illegal acts aimed

at promoting Microsoft's Internet Explorer browser at the expense of Netscape Navigator, the Webbrowser by Netscape many credit with having been the catalyst for consumer adoption of the Internet.

The suit seeks injunctive relief sufficient to prevent further antitrust injury to Netscape and an award of

treble damages to be determined at trial.

In November 1999, Judge Thomas Penfield Jackson had also found that while Microsoft had improperly

used its dominance of the PC operating system market to grab a 60 percent share of the browser

market.

"Netscape's lawsuit is a sort of an extension of the findings entered by the District Court and

unanimously affirmed by the Court of Appeals that Microsoft thwarted competition, violated the

antitrust laws and illegally preserved its monopoly at Netscape's expense.

Netscape was seriously damaged by Microsoft's (illegal) conduct in at least the following ways: it lost

browser licensing revenues; it lost browser market share that would have led to other significant

sources of revenues, including portal revenues and revenues from its enterprise software and products

businesses; its marketing and distribution costs were significantly increased; it lost goodwill and going

concern value; and it lost the profits that would have existed if Microsoft had not acted illegally to


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prevent Netscape's browser technology from providing a competitive alternative to Microsoft's

monopoly operating system as a development platform

COMPARISON BETWEEN MRTP ACT,1969 & COMPETITION ACT

S.No MRTP Act, 1969 Competition Act, 2002

1 Based on the pre-reforms scenario Based on the post-reforms scenario

2 Based on size as a factor Based on structure as a factor

3 Competition offences implicit or not

defined

Competition offences explicit and defined

4 Complex in arrangement and language Simple in arrangement and language andeasily comprehensible

5 14 per se offences negating the

principles of natural justice

4 per se offences and all the rest subjected t

rule of reason.

6 Frowns upon dominance Frowns upon abuse of dominance

7 Registration of agreements compulsory No requirement of registration of agreemen

8 No combinations regulation Combinations regulated beyond a highthreshold limit.

9 Competition Commission appointed by

the Government

Competition Commission selected by a

Collegium (search committee)


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10 Very little administrative and financial

autonomy for the Competition

Commission

Relatively more autonomy for the Competiti

Commission

11 No competition advocacy role for the

Competition Commission

Competition Commission has competition

advocacy role

12 No penalties for offences Penalties for offences

13 Reactive and rigid Proactive and flexible

14 Unfair trade practices covered Unfair trade practices omitted (consumer fo

will deal with them)

15 Does not vest MRTP Commission to

inquire into cartels of foreign origin in a

direct manner.

Competition Law seeks to regulate them.

16 Concept of Group Act had wider

import and was unworkable

Concept has been simplified

Critical comments on the Competition Act

Though the Act substantially covers all aspects, it still leaves ample scope for improvements.

Assimilation of CCI as a corporate body and at the same time describing it as a Tribunal makes it of a


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somewhat hybrid character. Though as a corporate body it can sue and be sued, as a quasi-judicial body

it cannot, generally do so. The position has to be clarified.

There are two provisions in the Act which substantially defeat its independence. Section 50 provides for

grants by the Central Government to CCI. The Act provides that the salaries of the staff and otherexpenses shall be met by the Competition Fund. Here lies the catch. Such a provision takes away the

independence and autonomy of CCI by including grants by the Central Government as a part of the

constitution of the Competition Fund. Thus, CCI has to circuitously depend on the Central Government

for meeting its infrastructural and other expenses. Further, CCI is bound to follow any policy directions

given by the Central Government. And, Section 56 empowers the Central Government to supersede CCI

by issuing a notification and giving reasons for the same. CCI being a quasi-judicial body would be

appointed by the executive and such power to supersede would severely affect the independent

functioning of the Commission. On one hand, it is said that CCI is a quasi-judicial body and on the other

hand, the Act mandates that its decisions are not final. Even the MRTP Act never had any such provision.

Some of the market analysts have apprehended that implementation of the Act in its present form will

be nothing less than a declaration to kill our national companies. The Act talks of competition but, at the

national level, it is a competition between a mouse and a cat. The Act is opening the entire country to

the world for competition. The Act does not retain any specific provisions to protect the interests of the

domestic industry, which is exposed to international competition unlike the US law. There Section 201 of

the Trade Act, 1974 of the US has been applied to increase imports regardless of whether their

importation is the result of any unfair competition. The only concern under Section 201 is whether the

imports are a substantial cause of serious injury to a US industry; the specific trading practices of the

foreign seller, fair or unfair, are irrelevant. If the requisite injury and causation are established, and relief

ordered and accepted by the President, that relief operates against all imports i.e. from all foreign

producers in all countries.

Similarly, Title VII of the Trade Agreements Act of 1979 and Section 337 of the Tariff Act of 1930 apply

broadly to unfair methods of competition and unfair acts in US import trade, but in practice it has

been applied essentially to exclude imports that infringe on US patent rights or violate other intellectual

property rights, such as trademarks and copyrights. Looked in this perspective it is felt that the

legislature must incorporate provisions to safeguard the domestic industries against the fierce global

economic competition.


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Cartels, particularly the hard-core cartels have a grave and adverse effect on the economy and

consumers, and as they are difficult to detect and prove, the provisions should be as deterrent as

possible. It is suggested that to make the law more preventive, the Act should incorporate criminal

proceedings against the persons involved at the appropriate criminal court in case the cartel is proved.

The UK recently amended its competition law to include personal criminal liability. The relevant law of

the US also incorporates such penal provisions and experience has shown that they have had a

considerable deterrent effect.

Further, the Act fails to provide a stick and carrot approach in the form of heavy fines and criminal

proceedings against the violators coupled with the promise of leniency for the whistle-blower which has

been proved to be very effective in uncovering and prosecuting hard-core cartels in many countries

including the US and EU.

Article 40 of TRIPS provides for control of anticompetitive practices in contractual licences. It says that

TRIPS does not prevent countries from specifying in their legislation licensing practices or conditions

that may in practice constitute an abuse of intellectual property rights (IPRs) having an adverse effect

on competition in the relevant market. Similarly, Article 31 of TRIPS allows granting of compulsory

licences in anticompetitive situations. A good competition law cannot afford to be silent in addressing

IPRs in this fast-changing global economic environment. But the Indian law vide Section 3(5) of the Act

excludes licensing agreements with respect to IPRs from the purview of regulating anticompetitive

agreements. Often it has been experienced that IPR relationship between two firms end up in cartels or

anticompetitive conducts. CCI is required to keep an eye on such relationships as a part of its proactive

role. So, unless there is some provision with respect to IPR in the Act, CCI may tend to ignore such

relationships as the same does not lie under its jurisdiction.

The Act regulates only those mergers and acquisitions which qualify under the definition of

combination under Section 5. In practice, there may come up a situation where a merger may not

come under the definition of combination under Section 5, largely because of the benchmarks

prescribed therein, yet it may give rise to grave anticompetitive practices. This situation has to be

avoided.

Further, mergers of companies are being governed by the High Courts and the Securities and Exchange

Board of India, and now the same would be within the purview of CCI. It is felt that this may give rise to


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a peculiar situation where there may be overlapping of powers of three distinct forums with regard to

mergers.

Section 19(3) of the Act lays six factors for determining whether an agreement has an appreciable

adverse effect on competition.Yet the language of the sub-section tends to create confusion whileinterpreting the same. Clauses (a) to (c) of Section 19(3) are the grounds which the Commission may

consider while establishing appreciable adverse effect, whereas clauses (d) to (f) provide the defences

and exemptions which may be relevant to negate the presence of appreciable adverse effect. The

intent would have been clearer had separate sections on both these aspects been provided.

The Act confers an option on any statutory body to make a reference to CCI with respect to a decision

which the statutory authority has taken or proposes to take, is or is likely to be contrary to any of the

provisions of the Act. However, for making such a reference the condition precedent is raising of thesame issue by any party before it. It is suggested that apart from issue being raised by any party, any

statutory authority also on its own should have been allowed to make such a reference.

Further, CCI should also have been empowered, on approval by the Central Government, to inquire and

investigate on its own in any sector being regulated by a statutory authority, if it feels that an

anticompetitive situation has arisen or is likely to arise.

Finally, Section 32 authorises CCI only to inquire for acts taking place outside India but having an effect

on competition in India. It is suggested that CCI should have also been given powers to pass appropriate

orders apart from inquiring in such matters. The Act should also have incorporated provisions

conferring necessary powers to the Commission seeking cooperation from authorities in other countries

in investigation and implementation of its orders with respect to cross-border anticompetitive practices.

CONCLUSION

All of us can agree on the benefits of adopting and enforcing a transparent and nondiscriminatory

competition law. First, at the domestic level, the enforcement of competition rules prevents


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monopolization, as well as collusive and exclusionary practices that enable firms with market

power to unfairly confiscate the benefits of economic activity that should accrue to consumers

and competitors.

Second, at the international level, history demonstrates that cross border cartels tend to operate in

countries without competition laws to enhance their immunity from prosecution; they likewise

tend to avoid countries that have actively enforced competition laws. I also doubt that other

anticompetitive actors have any qualms about foisting the costs of their conduct on consumers in

countries that lack a competition law. Adopting a competition law is thus an important means for

protecting one's own consumers from the cross-border anticompetitive practices of firms.

Third, competition authorities can be agents of market-opening change in their countries through

their role as competition advocates. Several competition authorities in Latin and South America

have recently contributed greatly to eliminating restrictive regulations in sectors that were

previously not open to competition, through advocacy on behalf of privatization or deregulation.

We too continue to advocate aggressively on behalf of competition principles with the federal

electricity regulator, the various state public utility commissions, the federal communications

agency and entities that help to shape intellectual property policy.

But promoting competition in any country is a challenge, precisely because the benefits ofcompetition are long term and are distributed broadly among all consumers, whereas the benefits

of protection are immediate and concentrated on a few recipients. Thus, powerful and well

organized lobbies tend to be quite effective in preventing the emergence of competition. Yet just

where these lobbies may be most powerful -- in smaller, developing markets with narrow

economic bases and concentrated industrial sectors -- is where anticompetitive practices are most

likely to flourish and where the need is greatest to promote competition through privatization,

deregulation and the adoption of a competition law.

The Indian legislature deserves accolades for the introduction this much-needed piece of

legislation. In retrospect, the highlight of the Act is its intent, which not only prohibits

anticompetitive agreements, which are detrimental to the consumers and the market, but also

prohibits any agreement that is likely to cause an appreciable adverse effect on competition.


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In a developing economy like India where economic power is not fairly distributed, this new

competition policy is expected to play the dual role of raising the power, within reasonable

bounds, of underprivileged economic agents to become viable participants in the process of

competition on the one hand, and of establishing the rules of fair and free competition on the

other.

If these two objectives are not met, unfettered competition will simply help a handful of

privileged big firms to monopolize domestic markets that are usually protected through import

restrictions. This will then give rise to public dissatisfaction.

Secondly, fair and free competition is an essential requirement for sustained economic growth.

Without fairness, freedom alone may not achieve the desirable outcomes expected from

competition, especially in developing economies where unfair elements can be exacerbated by

competition.

India is likely to emerge as the second largest market in the world in the not so distant future. In

this scenario the CCI will be expected to play a balanced role, protecting both consumers

interests and the interests of the businessmen. The CCI will also have an important task of

collaborating with the various sectoral regulators and herein competition advocacy will play and

important role.

The CCI has th

Documents

Competition Law India