Contributed by: Singh & Associates
The Competition Act, 2002 ("the Act") was enacted to ensure an Indian market economy based on free and fair competition. The primary objective of the Act is to promote and sustain competition in markets and protect the interest of consumers, while keeping the economic development of the country in view. To achieve the aforesaid objective, the Act prohibits anti-competitive agreements and abuse of dominant position by enterprises and regulates combinations (acquisition, acquiring control and merger/amalgamation) which cause or are likely to cause an appreciable adverse effect on competition ("AAEC") within India. The test is that the degree of adverse effect should be appreciable, not minimal.
The Act also extends its applicability to agreements, abuse of dominance and combinations entered outside the Indian jurisdiction which have an AAEC in India.
The Act provides for the establishment of the Competition Commission of India ("CCI") and Director-General to assist CCI in conducting an inquiry into contravention of the provisions of the Act. Inquiry into any alleged contravention is conducted suo moto or on information from any person, whether he is or is not personally affected[Samir Agrawal v CCI & Ors , Supreme Court of India (Civil Appeal No. 3100 of 2020 decided on 15.12.2020)] or references from the Central and State Government or a statutory authority.
The Act prohibits anti-competitive agreements i.e. agreement which causes or is likely to cause an AAEC. An anti-competitive agreement can be oral as well as in writing.
The Act presumes horizontal agreements, i.e., agreements entered between or among competitors operating in an identical or similar industry, as anti-competitive and it is on the enterprise /association which has entered into the agreement to prove the absence of an AAEC. Joint ventures are exempted from the presumption if the agreement increases efficiency in production, supply, distribution, storage, acquisition, or control of goods or provision of services. However, during COVID-19, to combat the disruption in the supply and demand patterns, CCI allowed competitors to coordinate certain activities by way of sharing data on stock levels, timings of operation, distribution activities and infrastructure, etc. to ensure continued supply and fair distribution of medical and healthcare products, essential commodities and services.
Vertical agreements between manufacturers and its downstream distributors, retailers or upstream raw material suppliers, etc, including tie-in arrangement; exclusive supply agreement; exclusive distribution agreement; refusal to deal and resale price maintenance, and any other vertical restraint if it causes or is likely to cause an AAEC, also attract inquiry by CCI. While examining whether a vertical agreement is anti-competitive, CCI in addition to examining the facts and circumstances of each case also relies on the rule of reason to determine whether or not an activity creates unreasonable restraint on competition.
However, an enterprise can enter into an agreement imposing restrictions to protect its intellectual property rights provided they can establish the grant of the applicable intellectual property rights by documentary evidence.
The rebuttal of presumption of an AAEC by an enterprise under investigation can be made by demonstrating how the impugned conduct resulted in the accrual of benefits to consumers; improvements in production or distribution of goods or provision of services; and promotion of technical, scientific and economic development by means of production or distribution of goods or provision of services.
In the past, CCI has exercised its power of extra-territorial jurisdiction to initiate investigations suo moto based on information received with regard to cartelization & bid-rigging amongst Original Equipment Manufacturers ("OEM") of auto-components. Although, not much could be achieved due to the lack of documentary evidence against these OEMs, nonetheless, CCI is making its presence felt offshores.
There is a growing trend of information relating to cartelization (within and outside India) being received by CCI under its leniency policy wherein the identity of the applicant (i.e.whistle blower) is not disclosed and he gets the benefit of leniency (lesser or zero penalty).
Abuse of dominance:
The Act prohibits an enterprise or group to take advantage of its dominant position in a relevant market to indulge in a conduct which causes an AAEC by negatively affecting its competitors or consumers. There are several indicators provided in the Act to assist CCI in assessing dominance such as market share of the enterprise, size and resources of the enterprise, economic power of the enterprise, etc. CCI also undertakes the exercise of determining the relevant market i.e. the relevant product market and/or relevant geographic market.
The Act empowers CCI to impose monetary penalties on contravening parties as a deterrent. Over the past years, CCI has been imposing high penalty amounts with an increasing rate, as means of ensuring better competition enforcement. However, during the pandemic, in recognition of its role in helping the economies, CCI has adopted a lenient approach by imposing lesser penalty amounts and in some cases, not imposing monetary penalties where compliance would be achieved by a firm warning and a simple cease and desist order.
Regulation of Combinations:
The Act also provides for merger control provisions which enable CCI to examine and assess whether a combination is likely to have an AAEC. It further empowers CCI to direct a combination to not take effect or propose modifications and/or levy monetary penalties, if it is of the opinion that a combination has or is likely to have an AAEC.
In case a combination exceeds the asset and turnover thresholds specified in the Act, the transaction has to be notified to CCI and requires an approval. Presently, the thresholds have been fixed in such a way that only large transactions require a notification. With the digital markets evolving, CCI is contemplating to revisit the adequacy of turnover-based thresholds and adjust market definition to efficiently regulate combinations in the digital markets.
As part of its continued efforts to ensure minimal regulatory compliance, the Green Channel route was introduced in August 2019 for automatic approval of CCI for specific combinations where there are no major concerns of an AAEC.
Recently, CCI has dispensed with the requirement of providing information to CCI on non-compete arrangements in the notice for a proposed combination, to give freedom to the parties to negotiate non-compete clauses on their own terms.
Compared to the competition regimes of the developed countries, the Indian competition law still has a long road ahead to achieve its objective of achieving market efficiency, innovation and maximizing consumer welfare through competition.
Contributed by Singh & Associates
The above article is authored by Ms. Reeta Mishra(Partner)