A NEW COMPETITION REGIME IN INDIA

Competition Commission of India (CCI ushers in a new Competition Regime in India. The new regime will change the business environment in India. A certain sections of Indian industry are anxious about this new enactment and its possible impact on them.

Needless to say that this dynamic statute will serve as boomerang and change the way Corporate India functions on a day to day basis. What is important for companies to note is the some age old trade practices, which have received sanction due its customary nature and failure of the MRTP Commission to deal with such practices, would be target of CCI. Corporate giants in India, therefore, need to understand the new law and update themselves regularly on the new policies and regulations.

Important Provisions of the Competition law of India.
The preamble of the Act which lays out the objectives of the Competition Act and defines the role and scope of the Commission leaves much thought when enforcement and implementation are involved. The preamble:
An Act to provide, keeping in view of the economic development of the country, for the establishment 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 India

Very clearly the Competition Act with its focus on economic objectives defines the role of the Commission as an economic instrument where dispensation of justice is primarily to promote and sustain competition in markets while protecting the interests of consumers. The onus on the Commission is very heavy and in the debate between law and economics there are many areas of judgment which are not so clear and obvious as one would want to believe in the first reading of the Act. Often a simplistic economic analysis could lead to nave conclusions defeating the very purpose of the Act and requires sharpening of economic tools.

Section 3 of the Act deals with cartels  horizontal and vertical. In the case of horizontal cartels Sec 3(3) the judgment is per se which would suggest that if there is a cartel there is no requirement of assessing whether the cartel has market power or not and more significantly whether market power is exercised or not. On the face of it, the approach is appropriate as even in economic theory cartels are the most destructive. Moreover if cartels are known to exist it is best to act quickly.

The definition of cartel in Sec. 2 (c) has the phrase.limit, control or attempt to control the production, distribution, sale or price of or, trade in goods or provision of services. Section 3(3)(b) the phrase attempt to control does not figure. Market power is taken as given. As an economist the concern is with establishing how attempt to? translates into actual reality or successful action namely, assertion of market power. This is where economics and data analysis becomes critical.

Market studies on cartel normally start with the measurement of concentration using the HHI Index. But the index reflecting concentration can pose a concern regarding the formation of a cartel for without defining market power concentration itself as a feature of a cartel can be misleading. Price parallelism is then necessary to establish but eludes measurement either on account of i) paucity of data; ii) it (the cartel) is a temporary phenomenon and iii) spontaneous market response of prices falling in line. Concrete evidence of an agreement? to fix prices/quantities is critical. Proving the existence of a cartel is often not a simple exercise.

Trade Associations, per se, are not cartels as defined under Section 2(c) of the Competition Act 2002. Trade associations consist of individuals and firms with common interests in trade, which join together to further their common commercial or professional goals. The activities of a trade association usually span across a variety of issues, many of which may fall outside the ambit of competition law entirely, or be fully compatible with the competition rules, provided cooperation between members? remains within certain defined boundaries. However, because these activities involve a degree of horizontal cooperation between firms, organizations of this nature remain vulnerable to stepping outside the boundaries placed by competition law.

Several questions need to be examined while attempting to evaluate the market power inherent in the attempt to control? (Sec. 2(c)) and the actual limit or control? of Sec. 3(3)(b).
? What are the conditions/circumstances when a Trade Association is presumed as likely to indulge in anti-competitive practices?
? How to distinguish between the legitimate role of an association and an association acting as a cartel?
? What factors need to be looked into while determining whether a particular activity of a trade association as having stepped beyond the limits placed by competition Law?
? Is absence of profit motives a sufficient defense mechanism for claiming exemption as a cartel?
? What are the indicators to quantify interest of consumers and trade freedom by the market participants while looking at the impact of structure and behavior of trade associations?
? What is the relevant product/service market in trade associations? issue?
? If there are multiple trade associations operating in the same sector, do they form cartel of cartels?
The problem gets more complicated when trade association indulge in collective boycotts often in the name of public interest the issues then are :
i) What constitutes public ?
ii) If collective boycotts by trade associations are for legitimate? cause as per other statutes, does it become anti-competitive practice? And
iii) What are the likely adverse effects on contract negotiations due to collective boycotts.
A related issue is the aspect of levy of fines if a trade association is found guilty of anti-competitive practices. In the Competition Act Sec. 27(b) fines and penalties are with reference to the turnover/profits. The measurement of the penalty will then have to reference to each individual company turnover or with regard to the aggregate turnover as the liability of the members of the Association.

Trade Associations as the monopoly in their sector or industry are liable to scrutiny under Sec. 4 also and their interventions into the functioning of markets can constitute abuse of dominance.

Defining the relevant market be it the product market or the geographic market is required for complaints under Sec. 4. Complexities arise in case of monopolies on account of legal provisions or statutes such as distribution licensees under the Electricity Act, 2003 or a government company or a public sector unit. These monopolies come under Sec. 19)4) (g) but does the legal sanctity give them the right to indulge in abuse of dominance? The abuse of dominance here can be as a monopsonist and not as a monopolist. Defining and determining market power only gets more complex starting with simple questions of dominance for whom and what. It maybe noted that under the definition of enterprise under Sec 2(h) enterprise includes government department, enterprises unless related to sovereign function of the Government and is therefore under the purview of the Competition Act.

Applicability of Competition Law
1. Different from MRTP commission
First thing that entrepreneurs must note is that Competition Law is conceptually different from MRTP. It is because of this reason that the law makers considered it necessary to make a new law instead of just amending the MRTP Act.
MRTP Commission never had power to stop restrictive trade practices. However, Competition law has given sufficient powers to CCI to ensure that an enterprise which indulges in anti-competitive practices suffers serious consequences. For instance, if you and your competitors indulge in cartelization, CCI can impose, upon all the participants of your cartel, a penalty of up to three times of the profits for each year of your existence or ten percent of your turnover for each year of continuance of cartel, whichever is higher.

2. Extra-territorial Jurisdiction of CIC.
Law on Competition in India gives extra-territorial jurisdiction to CCI. What it means is that even if you are operating outside India, if your anti-competitive activity has or is likely to have an palpable adverse effect on the competition in India, CCI can initiate investigation against your activities and if necessary pass orders against you, just as if may pass orders against any other domestic enterprise.

3. Scope of the CIC
Competition law has given wide scope to CIC. It does not matter what sector you are operating in. As long as your activities can potentially have an appreciable adverse effect on Competition in the relevant market in India, you should be concerned about the new law.

4. Lifting of Corporate Veil
Competition law gives statutory permission to CCI for lifting the corporate veil. When the entity contravening the provisions of competition law is a company or a firm, every person who was in charge and responsible to the company (director, manager, secretary or any other officer) during the relevant period shall be deemed guilty and would be liable to be proceeded against and punished under the law.

5. Regulatory Power
CCI has also been given the mandate to regulate combinations. Though Combination per se has not been defined in the Competition law but includes the following, when they exceed the threshold limits specified in the Act in terms of assets or turnovers:
? Acquisition of controls, shares, voting rights or assets;
? Acquisition of control by a person over an enterprise where such person has control over another enterprise engaged in competing business;
? Merger or amalgamation between or amongst enterprises
Any entity which proposes to enter into a Combination has to notify CCI and seek its approval before entering the Combination.