Om Sri Sai Ram

An offering at His Lotus Feet

THE METAMORPHOSIS
From MRTP Act to The Competition
Act
The Background
Young India in 1947
Command and control economy
Aim for social, political and economic justice
(articles 38 and 39 of the constitution)
articles 38 and 39 of the constitution
says.
the State shall strive to promote the welfare of
the people by securing and protecting as
effectively, as it may, a social order in which
justice social, economic and political shall
inform all the institutions of the national life,
and the State shall, in particular, direct its
policy towards securing that:
articles contd.
1. that the ownership and control of material
resources of the community are so distributed as
best to serve the common good; and
2. that the operation of the economic system does
not result in the concentration of wealth and means
of production to the common detriment.
What is competition?
It is a situation in a market in which firms or
sellers independently strive for the buyers
patronage in order to achieve a particular
business objective, for example, profits, sales
or market share.
-world bank, 1999
Benefits.
To Companies: efficiency, cost savings
operations, better utilization of resources.
To Consumer: wider choice of goods at
competitive prices.
To Government: generates revenue.
Competition law
It is a tool to implement and enforce competition
policy and to prevent and punish anti-competitive
business practices by firms and unnecessary
Government interference in the market.
Competition is the engine of market economy
- Professor Wolfgang Kartte, the Chairman of the
German Federal Cartel Office,
Need for competition law
market can suffer from failures and distortions
various players can resort to anti-competitive
activities such as cartels, abuse of dominance etc.
which adversely impact economic efficiency and
consumer welfare.
Thus there is need for Competition Law, and a
Competition Watchdog with the authority for
enforcing Competition Law.
The competition law of India:
The Monopolies and the Restrictive Trade
Practices Act,1969
Objectives of the MRTP Act
1. prevention of concentration of economic
power to the common detriment;
2. control of monopolies;
3. prohibition of Monopolistic Trade Practices
(MTP);
4. prohibition of Restrictive Trade Practices
(RTP);
5. prohibition of Unfair Trade Practices (UTP).
What is a trade practice?
Sec 2(u) says any practice in relation to
carrying on of any trade and it includes
anything done which controls or affects the
price or the method of trading can be called as
a trade practice.
Concept of Dominance
basis of determining dominance is whether an
undertaking has a share of 25% or more in the
production, supply distribution or control of
goods or services
Restrictive Trade Practices (RTP)
u/s 2(o)
"restrictive trade practice " means a trade
practice which has, or may have, the effect
of preventing, distorting or restricting
competition in any manner and in particular,-
a) Which tends to or obstructs the flow of
capital or resources for production.
b) Which tends to impose unjustified costs or
restrictions on consumers by manipulation of
prices, conditions on delivery.
Restrictive Trade Practices (RTP);
i) Refusal to deal
ii) Tie-up sales
iii) Full line forcing
iv) Exclusive dealings
v) Price discrimination
vi) Re-sale price maintenance
vii) Area restriction
Unfair Trade Practices (UTP)
u/s 36
A trade practice, which for the purpose of
promoting sale, use or supply of any of the
goods or provisions of services, adopts any
unfair method or deceptive practice.
Unfair Trade Practices (UTP)
u/s 36
(i) Misleading advertisement and false
representation. ( eg. Khaitan fan)
(ii) Bargain sale, bait and switch selling.
(iii) Product safety standards.
(iv) Hoarding or destruction of goods
Monopolistic Trade Practices (MTP)
u/s 2(i)
control production, supply, etc
control prices
prevent, reduce or eliminate competition
limit technical development
retard capital investment
impair the quality of goods.
Increase unreasonably the cost, prices, profits
The amendment in 1991
Indias approach towards the world changed:
Liberalization, Globalization, privatization
Economic reforms, viz., industrial policy,
foreign inv. policy, trade policy
Phase-wise reduction in tariffs
Abolition of the monopoly of the PSUs
Extract of the amendment bill:
With the growing complexity of
industrial structure and the need for achieving
economies of scale for ensuring higher
productivity and competitive advantage in the
international market, the thrust of the industrial
policy has shifted to controlling and regulating
the monopolistic, restrictive and unfair trade
practices rather than making it necessary for
certain undertakings to obtain prior approval of
the Central Government for expansion,
establishment of new undertakings, merger,
amalgamation, take over and appointment of
Directors.
It has been the experience of the Government that
pre-entry restriction under the MRTP Act on the
investment decision of the corporate sector has
outlived its utility and has become a hindrance to the
speedy implementation of industrial projects. By
eliminating the requirement of time-consuming
procedures and prior approval of the Government, it
would be possible for all productive sections of the
society to participate in efforts for maximization of
production...
Major amendments:
the first 2 objectives de-emphasized.
Abolition of the pre entry restrictions
Deletions of provisions relating to dominant
positions.
MRTP shall apply to the public owned
enterprises too. (PSUs, stat. cos, Govt cos.)
Exceptions like defence.
Doesnt prohibit combinations, but controls
them
MRTP commission u/s 5(1)
A quasi judicial body .
Set up in 1970 and headquartered at Karol Bagh, Delhi.
Members: no less than2 and more than 8 appointed by
the Govt.
Chairman to head the commission.
Director general of investigation and registration
MRTP Commission
Functions:
: in 2 capacities , viz. advisory and
administrative
: keeping the mkt competitive
:investigation and control
The powers of the Commission
i) to pass a cease and desist order
ii) to grant temporary injunction, restraining an
errant undertaking from continuing an alleged
trade practice
iii) to award compensation for loss suffered or
injury sustained on account of RTP, UTP or MTP;
The powers of the Commission
iv) to direct parties to agreements containing
restrictive clauses to modify the same
v) to direct parties to issue corrective
advertisement
vi) to recommend to the Central Government,
division of undertakings or severance of inter-
connection between undertakings
The process.
Complaint to the
commission
Investigation by
the DG
Relief by means
of compensation,
refunds,
replacements.
The dark side of the MRTP.
Absence of specification.
(Abuse of Dominance, Cartels, Collusion and Price Fixing, Bid
Rigging, Boycotts and Refusal to Deal ,Predatory pricing)
Hindered the scope.
Lop holes in usage
Diff. interpretations by diff courts.
Not in tandem with the changing scenario.
An excerpt from the Finance Ministers budget
speech in February, 1999:
The MRTP Act has become obsolete in
certain areas in the light of international
economic developments relating to
competition laws. We need to shift our focus
from curbing monopolies to promoting
competition. The Government has decided to
appoint a committee to examine this range of
issues and propose a modern competition law
suitable for our conditions.
COMPETITION ACT,
2002
OBJECTIVES
To prevent practices having appreciable adverse
effect on competition
To promote and sustain competition in trade and
industry
To ensure freedom of trade carried on by the
participants in market in India
Establishment of the Competition Commission of
India
32
RUBRIC OF THE COMPETITION ACT
Competition advocacy
Prohibition of Anti Competitive Agreements
Abuse of dominant position.
Regulation of combinations
The Three Phases
34
Phase 1
Competition
advocacy
Phase 2
Anti-
competitive
agreements
Abuse of
dominant
position.
Phase 3
Regulation of
combinations
Appreciable Adverse Effect on
Competition (AAEC)
Creation of barrier to new entrants.
Driving existing competitors out of market
Accrual of benefits to consumers
Improvements in production or distribution
Promotion of technical, scientific or
economic development.
ANTI- COMPETITION AGREEMENTS
Horizontal
Are agreements between competitors
Pernicious form Cartel
More rigour exercised
European steel cartel
ANTI- COMPETITION AGREEMENTS
VERTICAL AGREEMENTS
Are agreements between firms up or down
the supply chain from one another.
Typically not subject to the rigours of the law
unless.
Horizontal Agreements having AAEC
Agreements regarding price
Agreements regarding quantity
Agreements regarding bids
Agreements regarding market
The Rule Of Reason
The Rule of Reason doctrine was developed
by the United States Supreme Court
The rule states that only combinations and
contracts unreasonably restraining trade are
subject to actions under the anti-trust laws, and
that possession of monopoly power is not
inherently illegal.
Vertical Agreements subject to Rule of
Reason test
Tie in arrangement
Exclusive supply agreement
Exclusive distribution agreement
Refusal to deal
Resale Price Maintenance
Exceptions
Rights bestowed under various Intellectual
Property Rights (IPR) Acts
Export of goods from India
RUBRIC OF THE COMPETITION ACT
Prohibition of Anti Competitive Agreements
Abuse of dominant position
Regulation of combinations
Competition advocacy
Abuse of Dominance
"Dominant Position has been 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 its competitors or consumers or the
relevant market, in its favour
Dominance Vs Abuse of Dominance
Abuse includes:
Unfair/discriminatory price or conditions.
Limiting or restricting production
Denial of market access
Conclusion of agreements subject to
supplementary obligations
Use of dominance to enter into another
market.
Predatory pricing
Predatory pricing
Pro-competitive pricing Vs Predatory pricing
amazon.com
RUBRIC OF THE COMPETITION ACT
Prohibition of Anti Competitive Agreements
Abuse of dominant position
Regulation of combinations
Competition advocacy
Combinations Regulation
Includes mergers, acquisitions,
amalgamation
Abuse of dominance
Notification to the Mergers Commission
Revision of limits
Nature of
Combination
Group
Status
Criterion Location Value
Acquisition
by enterprises
Acquisition by
individuals
No
Group
Assets
Turnover
In India
World over
In India
World over
Rs.1,000 cr. US$
500 millions
Rs.3,000 cr.
US$ 1500 million
Mergers/
amalgamation
Group Assets
Turnover
In India
World over
In India
World over
Rs.4,000 cr.
US$ 2 billion
Rs.12,000 cr.
$6 billion
RUBRIC OF THE COMPETITION ACT
Prohibition of Anti Competitive Agreements
Abuse of dominant position
Regulation of combinations
Competition advocacy
Competition Advocacy
Not just enforcement but fostering
competition
Government policies
Competition Fund
Competition Commission Of India
(CCI)
Two basic functions:
Administration and enforcement of
competition law
Involvement proactively in Governmental
policy formulation
Powers of the CCI
direction to discontinue and not to re-enter
such agreement or discontinue abuse of
dominance
impose penalty
direct modification of agreement
direction to abide by such other order
including payment of costs
pass such other order as it may deem fit.
Exemptions from the Competition Act
any class of enterprises if such exemption is
necessary in the interest of security of the State
or public interest;
any practice or agreement arising out of and in
accordance with any obligation assumed by India
under any treaty, agreement or convention with
any other country or countries ;
any enterprise which performs a sovereign
function on behalf of the Central Government or
a State Government.
Key differences between the M.R.T.P. Act &
Competition Act are:
MRTP ACT Competition Act
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
and easily comprehensible
5.
14 per se offences negating
the principles of natural justice
4 per se offences. All the rest
subjected to rule of reason.
6.
Frowns upon dominance Frowns upon abuse of dominance
7.
Registration of agreements
compulsory
No requirement of registration of
agreements
54
8.
No regulation on
combinations
Combinations regulated
beyond a high threshold.
9..
MRTPC appointed by the
Government
CCI selected by a Collegium
10.
Very little administrative and
financial autonomy for the
MRTPC
Relatively more autonomy for
the CCI
11.
No competition advocacy
role for the M.R.T.P.C
CCI 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 fora will deal
with them.
55
Ongoing Investigations by CCI..
a cartel inquiry against producers and
distributors of motion picture films
an exclusive supply agreement between a
steel producer and Indian Railways.
Some other features
Competition Appellate Tribunal
Extra-territorial reach
The Act covers all of the 29 States (and 6
Union Territories) of India, except for the State
of Jammu and Kashmir