CHAPTER 1 – INTRODUCTION
ABSTRACT
Fair and free competition is regarded as one of the important pillars for an efficient market economy. Manufacturing power increases and also new ideas is brought due to competition and at the end turns to proper distribution of assets. The relationship between international trade and competition law has a harmonizing function. Even though the laws are national, the markets do not stop at national borders. There is a great impact of competition law on country’s foreign trade because it moderately regulates the country during the time of international trade. With respect to the consumer, wider set of choices is provided followed with good product differentiation, low prices and satisfaction of consumer demand as well as preferences.
Over the last 30 years, various countries have given motivation for increasing competition by various public policies. Economic and trade liberalisation also boost competition in the market, to accelerate the offer of goods and services with less prices and good quality. Yet, anti-competitive practices by economic players or by making improper government policies also less the profits of liberalisation. This is the reason countries have to adopt particular competition regimes for controlling anti-competitive practices. It does not matter whether it is developed or developing country.
Competitive markets to promote efficiency is protected by competition law by banning some types of conduct. Any firm that is prohibited or restricted from entering the market and to introduce new products is considered illegal as per the competition law. The law forces the market players in searching better permutation and combination to provide more profit through great efficiency. In the year 1969, the Monopolies & Restrictive Trade Practices Act (MRTP) came into effect. The main focus of this Act was to control mechanism of monopolies and prohibition of monopolistic and restrictive trade practices. Whereas, in the new era, it could be found that MRTP had become outdated in the light of international economic developments with respect to competition, and it was required to shift the focus from curbing monopolies in the economic market to promote competition. This led to enactment of the Competition Act, 2002. This project will help us to understand in brief by comparing about the competition law of India and United Kingdom. Further, suggestion for better competition provisions which is necessary as per today’s era will also be noted and will conclude as per required.
1.2 OBJECTIVES
The objective is study about the concept of Competition, its embodiment in India particularly and comparing it with United Kingdom (UK). Further, this project also focuses upon the evolution of the competition law legislations, its similarities and also differences in the statutes and the manner in which enforcement mechanisms is developed by both the countries.
1.3 AIM
The aim is to analyse in detail competition legal regimes in both the countries and also comparatively understanding different concept like abuse of dominance, agreement of anti-competitive nature. Also to understand it in a better manner about the laws of UK and India and if there is in any manner where India is lacking behind, than, how can it be improved will also be stated.
1.4 STATEMENT OF PROBLEM
Generally, there a many companies which have a lot of capital and control over the market for having monopoly measures that will translate into an-competitive practice. In different countries such practices are performed by companies. Thus, it becomes to difficult to survive for the companies which are new to the market because they have no chance in the present market. Previously there were no authority to control such practices. There used to be direct discrimination which was observed on the market. By way of such large amount of non-ethical profits the company used to be in a superior position. No state used to interfere before in this practices and thus no penalties were imposed on them and they could be free easily. Thus, because of such various issues the was a need for enacting an act for preventing such practices.
1.5 HYPOTHESIS
- Whether Competition Act, 2002 succeeded in creating an environment conducive towards the competition process in India?
1.6 RESEARCH QUESTIONS
a. What are the reasons that resulted into changing Monopolies Restrictive Trade Practices Act, 1969 into Competition Act, 2002?
b. What are the comparative analysis with relating to abuse of dominance in UK and India?
1.7 RESEARCH METHODOLGY
The research is a doctrinal study of the competition laws in India and UK. Also to understand about the competition provisions by comparing both the countries laws. The project is based from various readings, observation from different authors, journal as well as research articles and analysing statutory provisions. The Library-based research method will be followed for deriving the Hypothesis. The search will be conducted on the basis of primary sources such as statutes and secondary sources such as books, online articles available freely as well as on legal databases. The project is based on pure theoretical research.
1.8 REVIEW OF LITERATURE
The Authors[1] gives us a brief background on the evolution of Competition laws as well as how it started to begin in India. The Authors sheds the light on the abuse of dominance which is generally followed by every superior companies. Also, specifying about the domain abuse, the comparison of India’s competition law with UK as well as US is explained. The perception of abuse of dominance is also well stated. The Authors explains about the provisions of Indian Competition Act, 2002 and more specifically gives much importance to Section 4 which states about the abuse of dominant position.
The Author[2] gives us about the history of Competition laws where, during the time of New Economic Policy in the year 1991 that resulted in the opening up of Indian market and the consequences was that there was an increase in the level of competition due to government control was reduced and market forces was allowed to operate. No doubt, the MRTP Act, 1969 was enacted but post liberalization the Act could not provide towards the changes in the economic scenario because it was only able to put forth situations that could be considered as unlawful and thus there was a necessary for bringing proper economic analysis for the changes that was possibly seen in the market and thus Competition Act, 2002 came into effect. The Author also explains about the various provisions of similarities and differences about the competition laws of India and UK.
1.9 CHAPTERIZATION
I have divided my project into 7 chapters. The first chapter deals with the introduction under which I have written about the concept of competition laws and why was it necessary for a shift from MRTP Act, 1969 to the Competition Act, 2002. Hypothesis, objectives, aim and literature review is also added for understanding better about the topic. Chapter two deals about the evolution of Competition law i.e. during the sixteenth century, when the international trade developed, the authorities felt necessary for regulating trade so that there should be fair competition. Thus, in the year 1623 the Parliament of England approved the Monopoly Statute which is known as the first modern law. Chapter three explains about the anti-competitive agreements which means any agreement which is declared void when it is made between enterprises with respect to supply, production, storage, distribution, acquisition, supply or control of goods or provisions of services which will likely cause adverse effect on competition in India. A proper comparison about such anti-comparison agreement between India and U.K. is stated. Chapter four deals with abuse of dominance which explains that no enterprise should abuse by being in the dominant position. The provisions relating to it in both India and U.K. is stated. Chapter five explains about the combinations which means any acquisition is done of one or more enterprise. Further, enforcement mechanism in India and U.K. is stated and also the provisions for penalty. Chapter six deals with the judgment of U.K. competition law in the judgment of Sabre Corporation vs. Competition and Markets Authority and with respect to Indian competition law in the judgment of XYZ vs. Hindalco Industries Ltd. and Ors. Finally, in Chapter seven I have given suggestion about what can be done for making better competition laws and ended my research project with conclusion.
CHAPTER 2 – EVOLUTION OF COMPETITION LAW
Renaissance that is originally referred to a cultural movement which is characterized between the fourteen and seventeenth centuries, even it is referred to a historical era that affect other aspects of daily life which includes competition and trade. During the sixteenth century, international trade began to develop. Even though this trade and the wealth was illegal, the authorities felt that it was necessary for regulating trade to create free and fair competition. The first modern patent laws known as the Monopoly statute was approved by the Parliament of England in the year 1623. Before the Monopoly statute, the laws relating to patent were subject to abuse by the authorities. During the period of Elizabeth I, common household items such as salt and starch were granted patents to create monopoly on needs. Other developments led to modern competition law which include trade restraint laws which means that commercial moderation prevents the parties from carrying out similar activities in a reciprocal opposition.
Acceptance of competition law is generally based on the Sherman Act, 1890 and the Clayton Act, 1914 both established in the United States. Other countries began to implement competition policies after the First World War that is similar to the United States. The regulators of competition have been put in place for ensuring compliance with the competition and antitrust laws and policies. After the Second World War, in Germany it was feared that the big industry alliances were manipulated for giving the Nazi regime the total control of the country. With respect to Japan, big companies were at the hotbed of nepotism which resulted in multi-industry corporations that used to control the Japanese economy. The surrender of Germany and Japan to allied forces at the end of Second World War allowing the application of strict controls, which were on the principles of those that is used in the United States.
After attaining independence in the year 1947, India for having a better half of century thereafter, followed and adopted laws that is known as Command and Control laws, regulations, rules and executive orders. One of the law in India relating to competition was MRTP Act, 1969. In the year 1991 the economic reforms were undertaken and due to this, the control and command economy began to evolve into a more open market economy. As in many countries, economic liberalisation has taken hold in India and there was a necessity for an effective competition regime to be recognised.
Article 38[3] and 39[4] of the Constitution of India was triggered on the competition law of India. It states that the State should promote the well-being of people by protecting and guaranteeing as effectively as possible an order in which economic, social and social justice inform all institutions of national life and the state will direct its policy towards the security. The control and ownership of the material resources of the community be distributed in the service of common good. The economic growth functioning does not lead to a concentration of wealth and means of production to the disadvantage of all.
In the year 1999, the Indian government appointed a high level committee on competition law and competition policy for defining a contemporary competition law for the country, in line with international developments, and to suggest a legislative framework, which may require a new law or appropriate amendments towards the MRTP Act. Competition Policy report was presented by the commission to the Government in May 2000. In November 2000 the Government was presented the draft competition law. After some refinements, following extensive discussions and consultations with interested parties, the Parliament in December 2002, passed a new law known as the Competition Act, 2002.
CHAPTER 3 – ANTI-COMPETITIVE AGREEMENTS
3.1 INTRODUCTION
In India various provisions of the Act deals with the establishment, functions and powers as well as discharge of adjudicatory function by the Commission. Under the Act, the Commission is vested with investigative, interrogational, regulatory and adjudicatory to a limited extent and also advisory jurisdiction. The nature of controversies that arise under the provision of the Act and large public interest, the matters must be dealt and taken to the logical end of pronouncement for final orders without any delay. If there will be an event of delay, the object and very purpose of the Act is likely to frustrate and the possibility of the great damage to the open market and will result to the country’s economy cannot be ruled out.
Mainly, the implementation of the provisions of the Act are mainly controlled by three main elements that is specifically dealt under Sections 3, 4[5] and 6[6] read with Sections 19[7], 26[8] to 29[9] of the Act and they are anti-competitive agreements, abuse of dominant position and regulation of combinations that is likely to have an adverse effect on the competition. The objectives of the Act are achieved through the instrumentality of the Competition Commission of India (CCI) that is established by the Central Government. Thus, proper care is required to be taken by the Commission in such situation so that there will not be any market failure that will cause harm to the market. For achieving such objectives, the CCI undertakes to do the following –
i. Making the market work for the benefit and welfare of the consumers.
ii. Ensuring healthy and fair competition in economic activities in the country for fast and inclusive growth and development of the economy.
iii. Nurturing and developing effective interactions and relations with sectoral regulators for ensuring smooth arrangement of sectoral regulatory laws in with the competition law.
iv. Implementing competition policies with an aim to effectuate the most efficient utilization of economic resources.
v. Effectively carrying out competition advocacy and spreading the information about the benefits of competition among all shareholders for establishing and nurturing competition culture in India economy.
3.2 ANTI-COMPETITIVE AGREEMENTS
The Act is quite similar to the laws in force in U.K. and U.S.A. That means, the provisions of Clayton Act, 1914 of U.S.A, the Competition Act, 1998 and the Enterprise Act, 2002 of U.K. have same scheme of enforcement and legislative intent. The provisions of such Acts are not quite pari materia to the Indian legislation. The Office of Fair Trading (OFT) in U.K., is primarily adjudicatory and regulatory functions that are performed by the Competition Commission and Competition Appellate Tribunal. The competition laws and their enforcement in U.K. are applied rigorously, progressive and more effectively. The deterrence objective of such anti-trust legislations is clear from the provisions with respect to criminal sanctions for individual violations, higher limit for imposing fines on corporate entities as well as extradition of individuals that are found guilty for the formation of cartels. The fact that there are much big violations of the provisions in India as compared to U.K., whereby, at the threshold, large number of cases invite the attention of the adjudicatory/ regulatory bodies.
a. No association or enterprise or persons[10] or associations of persons shall have to enter into any agreement in respect of supply, production, storage, distribution, acquisition or control of goods or provision of services, which is likely going to cause an adverse effect on the competition within India. Any agreement that is entered into in contravention of the such provisions shall be void.
b. Any agreement that is entered into between associations or enterprises of persons or enterprises or associations of persons or between any enterprise and persons or practice that is carried on, or decision taken by any association of persons, engaged in similar trade of provision or goods of services, which –
i. Directly or indirectly determining sale or purchase prices;
ii. Controlling or limiting production, supply, technical development, markets, provisions or investment of services;
iii. Shares the source of production or services by way of allocation of geographical area of market, or number of customer in the market or certain type of goods or services, or any other similar way;
iv. Directly or indirectly resulting in collusive bidding and shall be presumed to have adverse effect on competition.
v. Provided that nothing will apply to any agreement that is stated above, and that is entered by way of joint ventures if such agreement increases efficiency in supply, production, storage, distribution, control or acquisition of goods or services.
Any agreement amongst persons or enterprises at different levels or stages of chain of production in different markets, relating to supply, production, storage, distribution, price of or sale, or provision of services or trade in goods which includes exclusive supply agreement, tie-in arrangement, refusal to deal, exclusive distribution agreement, resale price maintenance will be an agreement that will contravene the provisions if the agreement causes an adverse effect on competition in India.
There is no definition relating to anti-competitive agreement in the Act. The definition of agreement under the Act states that any understanding or arrangement or action[11], in concert whether or not, such understanding, action or arrangement is formal in writing or intended to be enforceable by legal proceedings.
Any agreement is declared void when it is made between enterprises[12] relating to supply, production, storage, distribution, acquisition, supply or control of goods or provisions of services which will likely cause adverse effect on competition in India. This section is basically broad in scope. Basically laws relating to competition places anti-competitive agreements into two categories namely – horizontal and vertical agreements. Horizontal agreements are viewed more seriously than the vertical agreements. Firms that are entering into agreements will have the potential of restricting competition. Horizontal agreements are those among competitors and vertical agreements is with respect to potential or actual relationship of purchasing or selling to each other. Most of the laws relating to competition view vertical agreements more leniently as compared to horizontal agreements as prima facie, horizontal agreements will likely reduce the competition than the agreements between firms in a purchaser seller relationship. No such terms is used in the Act but as we read Section 3 (3) & 3 (4) the agreements are referred to horizontal and vertical agreements respectively. These sections are the main provisions that attracts and prove the existence of any anti-competitive agreements.
Thus, comparing the competition laws, all the anti-competitive agreements can be declared void. There are no such criminal sanctions for cartelization as per the Competition Act, 2002. With respect to monetary fines it seems to be common in major countries. Both India as well as U.K. fine can be upto 10% of the turnover.
CHAPTER 4 – ABUSE OF DOMINANCE
4.1 INTRODUCTION
Dominance is referred to as market power that is defined as ability of the firms in either increasing prices or reducing production outputs independently of its consumers, counterparts, etc. When market powers are acquired by firms, it can usually increase prices as well as gain monopoly profits being fearless of consumers or rivals. A firm having market power can increase the price or reduce the output, it is said to be abusing its powers.
However, because of such monopoly helps in providing personal benefits, but actually it is leading towards the loss of consumer welfare and such laws relating to competition see such abuse of dominance as the restrictive business practice. In various countries, laws show a less convergence to deal with abuse of dominance. The biggest difference is need to prove harm and injury because of that abuse.
4.2 INDIAN COMPETITION LAW
Primarily, all over the world competition laws are concerned with exercise of market power and its abuse. Monopoly power, substantial market and dominant position are taken into consideration in competition laws. Dominant position is stated in the Act in terms of position of strength that is enjoyed by the enterprise, in the market in India which is enabling for operating independently of the competition forces prevailing in that relevant market or affecting its consumers or competitors or that relevant market in its favour.
Relevant market means the market that can be determined by the Commission by referring to the relevant product market or relevant geographic market or referring to both the markets. The relevant product market is meant in terms of substantiality. There are number of factors which determines the role of an enterprise or group of enterprise in the market they are the size and resources of the enterprise, dependence of consumers, size and importance of competitors, vertical integration, extent of entry and exit barriers in the market, market structure and size of the market, source of dominant position, enterprises that are enjoying dominant position contribution to economic development. Abuse is occurred when a group or an enterprise use its dominant position in the relevant market in an exploitative and exclusionary manner. The dominance is judged in terms specified acts that is engaged by a dominant enterprise alone or in concert and will remain prohibited. Commission does not require any reference to the effect on competition.
No group or enterprise must abuse[13] its dominant position. The provision prohibits dominant position abuse by any group or enterprise. There will be abuse of dominant position[14] when directly or indirectly imposes unfair or discriminatory conditions in purchase or sale of goods and services or price in purchase or sale, indulging in practices that result in denial of market access, restricting or limiting production, technical, market or scientific development with respect to the goods or services, use of dominant position in one market for entering into other market, conditional contract.
4.2.1 PREDATORY PRICING
Under the act predatory pricing means selling of goods[15] or provision of services, at a price that is below the cost, that will be determined by regulations, with a view for reducing competition or eliminating the competitors. Such practice involves price cutting with the intention to eliminate competition to drive out the competitors of the market. The example of predatory pricing is when the seller is holding the price below the level of its actual cost, for a prolonged period until the competitors close down the business or compromise with predator according to his wishes. Such practice is indulged by a financial or dominant strong undertaking that bear the loss for time being with the intention to earn profits in future. Occasionally, the goods that are offered for sale at a price which shows a loss to the seller for attracting persons who will buy other goods at a profit to the seller, this is known as loss leader.
4.2.2 CONSEQUENCES OF ABUSE OF DOMINANCE
After sufficient inquiry about the abuse of dominant position the Commission can pass orders[16] namely –
i. Directing any enterprise with the dominant position which is involved in abuse of dominant position or agreement, to discontinue such agreement or abuse of dominant position as the case maybe;
ii. Imposing penalty not exceeding 10% of the average turnover for the last three preceding financial years, upon a dominant enterprise
In addition, for the award of compensation, Competition Appellate Tribunal (CAT) can be approached by any dominant enterprise for any loss or damage that will be shown by the applicant;
iii. Directing that the agreements should be modified to the extent and as per the manner specified in the order by the Commission;
During the pendency of any inquiry if the Commission finds that an act in contravention of anti-competitive agreements or abuse of dominant position or combination regulations is committed and continues the same, the Commission has the power to issue interim orders[17] by temporarily restraining any party from carrying such act until further orders.
4.2.3 BELAIRE OWNERS ASSOCIATION VS. DLF LIMITED & ORS.[18]
Belaire Owners Association filed a case under Section 19 (1) (a)[19] of the Act against three respondents such as Haryana Urban Development Authority (HUDA), Department of Town and Country Planning, Haryana (DTCP) and DLF. It was alleged that high unfair, arbitrary and unreasonable conditions were imposed by the DLF on the apartment of the allottees of the housing complex known as “The Belaire” which has caused severe effects on the rights of the allottees and DLF abused its dominant position. It was one of the contentions that in place of 19 floors with 368 apartments, DLF constructed 29 floors unilaterally. Due to this, not only the facilities and area originally given to the apartment allottees get compressed, but also the project was delayed and no reasons was provided to the Informants whatsoever.
From the above stated complaint that was made, the Commission had directed the Office of Director General for carrying out investigations on the allegations that was levelled against DLF and submit a report on its findings.
The CCI observed that the promotional brochures of the property by DLF provided additional facilities like shops, school and commercial spaces within the complex clubs, health centre, dispensary, recreational facilities, sports and along with the cost mentioned earlier can be broadly considered to define the characteristics of high-end residential accommodation. In the present case, the Commission noted that Gurgaon is seen to be the relevant geographic market for purchasing high-end apartment and it is not easily interchangeable to purchase similar apartment in other geographical location.
Also, Gurgaon possess certain unique geographical characteristics that it is near to Delhi, near to airports, etc. Therefore, the Commission held that the relevant market is the market for providing services of the builder/ developer with respect to high-end accommodation for residence in Gurgaon. After it went into appeal the Supreme Court held that the DLF have to deposit Rs. 630 crore to CCI in an interest bearing fixed deposit with the court for the duration of appeal proceedings. Within a period of three months it is required to be deposited, out of which Rs. 50 crore is to be deposited within three weeks.
4.3 U.K. COMPETITION LAW
Several laws have been enacted for regulating consumer protection such as Consumer Credit Act, 1974, Unfair Contract Terms Act, 1977, Unfair Terms in Consumer Contract Regulations, 1999 and all such laws satisfies the requirements of the European Union Directives on Consumer Protection. As per the Competition Act, 1998 it introduces prohibition in Chapter II i.e. from Section 17-24 with respect to the abuse of dominant position in UK market. Under Chapter 1 of the Competition Act, 1998, the law is prohibited when any agreement between two parties which has the object or effect to prevent or distort competition. If the transactions are affecting the transaction between other European Union states, then the fine can be upto 10% of the company turnover.
Abuse of dominant position is dealt in Chapter 2. Certain agreements are in excluded category. This includes mergers and concentration that is given in Schedule 1, Competition inspection under other enactments given in the Schedule 2 and other exclusions that is stated in Schedule 3. Exemptions can also be granted if an application in furtherance of it is made for improving distribution, production and promoting technical expertise. Limiting progress, production of the market or welfare of the consumer or detrimental to technical development is included in abuse of dominant position. Such abuse mainly applies towards the companies that is having a large market share of 40% or more.
Whereas, Enterprise Act, 2002 states about the provision with respect to the OFT which includes general functions, establishment and procedure that is required to be followed. Procedure to be followed under the Company Law Appellate Tribunal is also stated. Provisions are also made with respect to the mergers, public interest cases which the state interferes and provisions relating to enforcement that is investigation procedure and the reports that needs to be filed. Part 6 of the Act states provisions relating to cartel offences and also states about the criminal investigations procedure which is required to be followed by the OFT.
The Competition and Markets Authority adopted instructions on vertical agreements that sets out the idea on the application of Article 101[20] of European Union and also the prohibition of vertical agreement, which sets out guideline towards the assessment of vertical restrictions.
4.3.1 ARRIVA THE SHIRES LTD. VS. LONDON LUTON AIRPORT OPERATIONS LTD.[21].
Conclusion was given by the High Court stating that the award for an exclusive right for operating coach services from Luton Airport to central London for a period of 7 years amounted abusive behaviour. The case discussed earlier, where the customer purchase exclusively from the dominant firm and in this case, Luton Airport limited its ability for supplying its airport facilities to the competitors of its downstream customer.
Further, consequences were that ‘follow-on’ action towards damages can be brought against National Grid and two such actions were commenced in the Competition Appeal Tribunal that was settled in the year 2013. The OFT in Genzyme declared a fine of £ 6.8 million on the corporate house to misuse its dominant position in two ways, one was engaging in the abusive bundling of a drug and homecare services for patients that are suffering from Gaucher’s disease. Competition Appellate Tribunal held that nothing was proved by the OFT regarding the bundling which have adverse effects for it to be abusive.
CHAPTER 5 – COMBINATIONS AND ENFORCEMENT MECHANISM
5.1 COMBINATIONS
Under the Act, when there is acquisition of one or more enterprises or amalgamations of enterprises[22] is known as Combination. Any acquisition of voting rights, shares, assets of other enterprise which is acquired jointly having either in India, the assets more than one thousand crores or turnover more than three thousand crores or in India or outside India the average value of assets is more than five hundred million US dollars which includes atleast five hundred crores in India or turnover is more than fifteen hundred million US dollars which includes fifteen hundred crores in India.
Any acquisition acquiring control by person over an enterprise when the person has already direct or indirect control over other enterprise engaging in distribution, production or trading of an identical or similar goods if the enterprise over which the control has acquired along with enterprise which already has direct or indirect control by the acquirer jointly have either in India the value of assets is more than one thousand crores or turnover of more than three thousand crores or in India or outside India, the average asset value is more than five hundred million US dollars which includes five hundred crores in India or turnover is more than fifteen hundred million US dollars which must include atleast fifteen hundred crores in India.
REGULATIONS
No enterprise or person must enter into combinations that cause or likely to cause adverse effect on competition[23] within such relevant market in India and the combination must be void. A notice is required to be given to the Commission when any enterprise of person proposes to enter into a combination in the form and fee prescribed, disclosing about the details of the combination that is proposed within thirty days of –
i. Approval of the said proposal with respect to mergers or amalgamation by the board of directors of the enterprises; execution;
ii. Execution of any document or agreement for acquisition.
Basically, two conditions are required to be satisfied before regulations of combinations is triggered-
a. It shall involve total turnover or assets, with separate criteria for international and domestic entities; and
b. It shall have territorial nexus with India.
Originally when the act was enacted the reporting of combination was optional. However, now the act mandates within 30 days of the decision of the parties board of directors or of execution any document for effecting combination. The perception for general industry is that a memorandum of understanding or letter of intent shall qualify as an agreement. It is generally executed to spell out basic understanding among the parties which are transacting for enabling the acquirer for conducting due diligence, on the basis of further negotiations that is carried out. Further, executing such a document will trigger merger filings which will add bulk of applications that is submitted to the Competition Commission. Competition Commission will have adequate capacity to handle and dispose such applications. The delay will have an improper effect if it does not have resources and it will at the end affect the parties’ ability for closing on time. Thus, it will be necessary for inserting a clause in all future transactions documents which states about the closing that will be subject to prior regulatory clearance which may be required from the Competition Commission.
5.2 U.K. LAW
Merger control in U.K. is basically controlled by two institutions, the OFT and the Competition Commission. There are three stages that is involved under merger control provisions of the Enterprise Act, 2002 i.e. Referral, Investigation and report and Remedial Action. The procedure is that the OFT shall make investigation relating to the merger with reference to the Competition Commission. After the investigation period, the Competition Commission shall compile a report and have a duty for taking actions to remedy any effect in the competition that can be identified in the report.
5.3 ENFORCEMENT MECHANISMS
1. India –
CCI was established by the Central Government in the year 2005 to achieve the objectives of the Competition Act, 2002 consisting of a chairperson and 6 persons appointed by the Central Government. Commission’s duty is for eliminating adverse effect on competition, promoting and sustaining competition, protecting the interest of consumers and ensuring freedom of trade. Further, the commission also has to do investigations into the matter that is referred by state and to create awareness about the advocacy of competition in India. E-filing of information is also introduced by the Commission through official portal and notice with respect to combinations shall be filed through Form 1. The process of investigation[24] that shall be carried out by the Commission is also stated in the Act. Investigation is conducted by the CCI either itself or through Director General for determining the proposed combination is likely causing adverse effect on the competition within India and a report is prepared. Through report the outcome will include whether there is contravention or no contravention of law. The decision of the CCI can be appealed before the National Company Law Appellate Tribunal.
Contravening the orders of the Commission will have a penalty which may extend to Rs. 1,00,000/- per day[25] and during which such non-compliance occurs, will subject to maximum of Rs. 10,00,00,000/- as the Commission may determine. If such fails to pay the penalty imposed, then there is a provision of imprisonment for a period of three years or fine upto Rs. 25,00,00,000/-. Where a party is failing to comply with the orders of the Director General[26] will be punishable with fine which may extend to Rs. 1,00,000/- per day and the failure continues will be subject to maximum fine of Rs. 1,00,00,000/- as the Commission determine. If a party fails to issue notice to the Commission[27], then the penalty may extend to 1% of the total turnover or assets, whichever is higher.
Commission also run a leniency scheme where less penalty is imposed[28] on enterprise who are making full and true disclosure in relation to the violations. All the sums that is credited to the Commission as penalties will be credited to the Consolidated Fund of India[29].
2. U.K.
Key stages are followed by the OFT in U.K. during the process of investigation. Initially, there were various sources by which information used to be gathered and this is known to be informal process. Such sources will include their complaints and research that is received by the cartel. Further, formal investigation process is commenced by issuing a notice in regard and evidence that is analysed. A proper assessment is done for checking that there is enough evidence of infringement and such report is made available to the parties on which reply has to be made.
In U.K., the Competition Commission closed down and their functions shifted to the Competition and Markets Authority. The five goals of the organisation is to deter wrongful acts which are done on the consumers and spreading awareness among businesses, improve competition within the market, to develop mechanisms for improving compliance, efficient management of cases and to involve people from different areas of expertise for providing the government advice relating on the competition.
As per Part 6 of the Enterprise Act, 2002, the criminal investigation process undertaken by OFT is stated. An offence relating to cartel is defined under Section 188 of the Act and it refers to the arrangement that is made by one person dishonestly agreeing with other people for doing acts such as fixed prices of goods and services, preventing or limiting supply and bid rigging. In such cases, the OFT has the power for investigation after a warrant is obtained from the High Court. The maximum imprisonment that can be given is 5 years for a person who is knowing that investigation is carried on and is falsifying or disposing the documents of the investigation and thus showing malafide intent.
CHAPTER 6 – JUDGMENTS
6.1 SABRE CORPORATION VS. COMPETITION AND MARKETS AUTHORITY[30]
Case decided by – The Hon’ble Mr. Justice Morris (Chairman), Michael Cutting, Professor Robbin Mason [Sitting as a Tribunal in England and Wales]
Case decided on – May 21, 2021
The case was brought before the Competition Appellate Tribunal where the Sabre Corporation applies for quashing the decision of Competition and Markets Authority (CMA), pursuant to the Section 120[31] of the Enterprise Act, 2002.
a. Sabre Corporation (Sabre) is a software and technology provider to the global travel industry. Its headquarter is in Southlake, Texas, U.S.A. It provides technology solutions to the airlines and the travel agents. Farelogix, is a technology and software provider that supplies technology solutions for airlines. Its headquarter is in Miami, Florida, U.S.A. It was at the relevant time owned by the Sandler Capital Management (Sandler), that is a private equity fund and it was a vendor in the merger. Farelogix provides non-core PSS IT modules and airline content distribution services using the standard of New Distribution Capability (NDC). It’s standard in the year 2018 was approx. £13.2 million worldwide with no material turnover in U.K.
b. On 14th November, 2018, merger agreement was entered into by the Sabre and was announced in the same day. On 6th December, 2018 the US Department of Justice (DOJ) was been notified about the merger by the parties. In the month of August, 2019 a complaint was filed by the DOJ in the U.S. District Court in Delaware, for seeking permanent injunction to prevent Sabre from acquiring Farelogix alleging that the proposed acquisition would likely lessen competition in violation of the federal antitrust law. The US District Court declined in prohibiting the merger in an opinion which was published on 8th April, 2020.
c. On 2nd September, 2019 the CMA following the Phase 1 review, referred for Phase 2 inquiry and report by a group of CMA panel under Section 33[32] of the Act. The merger agreement for acquiring Farelogix is for approx. US $360 million. The CMA was notified by the parties relating to the proposed merger in the merger notice dated 19th June, 2019. Final report was issued by the CMA on 9th April, 2020 and found that it had jurisdiction for considering the proposed merger under the Enterprise Act, 2002 on the basis of the share of supply test[33]. Further, it found that the proposed merger can be expected in giving rise to substantial lessening of the competition in two markets i.e. supply of merchandising solutions towards the airlines and the supply of distribution solutions to the airlines, both are worldwide markets. Thus, on this basis, the decision of CMA is to prohibit Sabre acquisition of Farelogix. The Merger agreement was terminated by the parties on 1st May, 2020. Thus, on 21st May, 2020 the Sabre challenging the final report applied for appeal, quashing the decision of the CMA.
ISSUE RAISED
i. The CMA erred in law about its Relevant Description of Services is not a law manner on which applied the share to supply test for the two highly unlike supplies in the absence of any reasoning.
ii. The CMA erred in approaching towards the requirement supply in the U.K., by conflating supply to an American airline of Farelogix services with the direct supply to the British Airways plc.
iii. In its application of the share of supply test, the CMA erred that it misinterpreted Section 23[34] of the Act by relying upon an increment which was both theoretical and vanishingly small and unreasonably and by error in law applying inconsistent and different methods with respect of Sabre and Farelogix and failed to compare like with like.
iv. In calculating the total supply of RDS services the CMA erred in the U.K. by failing in applying its own definition of RDS consistently or reasonably to the third party providers.
v. By correct application of the standard proof and properly assessing of the evidence, the CMA could not lawfully found a SLC in the merchandising market.
vi. The Substantial Lessening of Competition (SLC) finding in the CMA with respect to the distribution was unreasonable and non-supportive by the evidence.
JUDGMENT
Judgment passed by Competition Appellate Tribunal.
a. The Bench comprising of The Hon’ble Mr. Justice Morris (Chairman), Michael Cutting, Professor Robbin Mason held that with respect to the first issue that, the CMA did not fail in addressing itself properly towards the statutory questions that is arising under Section 23 of the Act. It identified the criteria that is required pursuant to Section 23 (8). Also, it properly applied the Merger guidance both with respect to roles in the industry chain and supply chain. The Relevant Description of Services by the CMA was in all conditions a reasonable one and it gave adequate reasons towards its conclusions. Thus, in relation to the first issue the CAT held that CMA did not erred in law neither reached a conclusion that was unreasonable.
b. With respect to the second issue, the contentions of Sabre are not well founded. The result in the British Airways agreement, when it is read in conjunction with the arrangements and facts, IT solutions was received by the British Airways that allows it to sell interline segments through Farelogix services and enabling the transfer of British Airways travel services information to the travel agent. In such manner, the British Airways receives the supply of the services from Farelogix in the U.K. Therefore, the conclusion of CMA’s is not considered unreasonable.
c. With respect to the third issue, the arguments of the Sabre is not accepted and thus issue fails and the fourth issue the Sabre did not establish its case in any points that was raised and such issue also fails. On 20th November, 2020, the tribunal was informed by the Sabre that it does not want to pursue the fifth and sixth issue. Therefore, the CAT held that all the four issues is dismissed unanimously.
CASE ANALYSIS
The Act is under the jurisdiction by the share of supply test which states that relevant merger situation should be created under Section 23 of the Act which states that the turnover value in U.K. of the enterprise taken over exceeds £70 million or the result of merger will create or strengthen the share of supply of 25% or more with respect to the supply of goods or services of any description in U.K. Thus, when an enterprise already is supplying or acquiring 25% of any goods or services the test is satisfied because its share will increase the result of the merger, regardless the increment size and when no increment is there, the supply test is not met. Therefore, the decision of the CAT, can be able to understood that the share of supply test takes a very important step in understanding that even though the merger is taking place in U.S.A. the supply of goods and services in U.K. which is more than 25% can be taken into consideration for bringing the case under competition law and thus the CMA was correct in taking the case under its jurisdiction.
6.2 XYZ VS. HINDALCO INDUSTRIES LIMITED AND ORS.[35]
Case decided by – Ashok Kumar Gupta (Chairperson), Sangeeta Verma (Member), Bhagwant Singh Bishnoi (Member).
Case decided on – October 8, 2020
a. The case was brought before the CCI under Section 19(1)(a)[36] of the Act by the Informant against Hindalco Industries Ltd. (Opp. Party 1) and Vedanta Ltd. (Opp. Party 2) and alleged that the cartelization to determine prices of certain copper products in India and sharing the market with some copper products by way of allocating customers and engaging in bid rigging as per the violation in the provisions of Section 3 (1) read with Section 3 (3)(a)[37], 3(3)(c)[38] and 3 (3)(d)[39]. The Informant is an Advocate registered with the Bar Council of India. Through sources, the Informant came to know about the cartelization by the Opp. Parties in the copper market.
b. Party 1 is the metal flagship company of Aditya Birla Group which is the leading supplier copper rods and other copper products in India. Whereas, Opp. Party 2 is diversified globally and is a large natural resources company which includes ore, iron, copper, steel, power, aluminium, gas and oil. Its business unit, Sterlite Copper is the one of largest custom copper smelters in India. The Opp. Parties control around 85-90% of the domestic production and 75-80% of the domestic supply, which gives them good hold on supplies in the Indian market.
c. In the year 2011-12, the Opp. Parties realised about the competition between them which is effecting their profits and that they can cooperate with each other and increase their profits which will result the whole process of cartelisation between the Opp. Parties. Afterwards, the parties are engaged in the production cartelisation and supplying the refined copper products and it is also alleged that the Opp. Parties have cartelised in relation to the additional charges that can be freely determined with the manufacturers and till about 2018, both the Opp. Parties officials used to discuss frequently setting the prices over phone calls and meetings.
d. The typical issue of the Opp. Parties is that they issue their price circulars to the buyers simultaneously within a short period and such circulars contains various components which includes additional charges. Discounts is also given to the customers on premium by the Opp. Parties in order for adjusting volumes and maintainability in the market and all these discussion is captured in the Excel sheet that is maintained by the Opp. Parties.
e. In the price circulars, the premium charged by the Opp. Parties in relation to 8mm of continuous case copper rod and the copper cathode remains identical at USD 180 per metric ton and USD 60 per metric ton. It is not possible for keeping the identical costs of processing by two different entities. Thus, such identity of prices can be stated to rise from a cartel between the Opp. Parties. The freight charges in relation to each geographical region is also identical. Certain customers are also fixed by the Opp. Parties and each Opp. Parties refrain from going to other parties’ customers and it would not be possible that they compete with each other for the share of customer and it is lessening the competition.
f. Besides cartelising in the open market, cartelisation is also in one of the important areas by the Opp. Parties i.e. supplying the defence industry. When tenders are issued by the Indian Ordnance Factories, mutual decision used to take place by the Opp. Parties in for winning the bid and also regarding the price that will be submitted by each of them.
ORDER
Order passed by the Competition Commission of India.
a. The Bench comprising of Ashok Kumar Gupta (Chairperson), Sangeeta Verma (Member), Bhagwant Singh Bishnoi (Member) held that, on the basis of the information that was made, the Informant did not make available any details about the details of such documents for substantiating the same. Thus, within a period of 10 days to make available all the documents with an Affidavit. The importers of the copper ore are the Opp. Parties and after the ore is refined, the parties supply various copper products in India. It is a common practice for using the London Metal Exchange that the price of copper for determining the base price of copper cathode.
b. Other charges like the premium amount that is charged by the manufacturers as per the value addition to process copper concentrate in downstream copper products. Also, a multiplication factor that is charged by an Indian manufacturer for countering import duty will bring the prices of their products with the prices of the imported product. The freight charges are the charges towards the delivery of the copper products to the warehouse is added by the manufacturer at such prices and charges other than the base price is charged by such manufacturers.
c. Even after giving opportunity the Informant was not able to prove the allegations that is made in the information by providing details. Therefore, there is nothing in the record for knowing that the prices that is disclosed in the price circulars is result of concerted action or will result of meeting of minds between the parties. There is no contravention of the provisions of Section 3 (3)(a) of the Act and thus, the price determining by the parties of copper products remains not confirmed.
d. The Commission held that, the informant is not able to prove the allegations that is made in the information and no case of violation of the provisions of Section 3 of the Act against the Opp. Parties. Thus, the order is closed in terms of the provisions under Section 26 (2)[40] of the Act.
CHAPTER 7 – SUGGESTION & CONCLUSION
7.1 SUGGESTION
The implementation of Competition law is very important from the applied point of view, there is an exclusive aspect in India such as mixed economy, where the role of the private sector has been permitted in some state owned undertakings. The threshold limit that is triggered in Competition Act, 2002 are very high, basically the main concern for a nation like India where there is a widespread of small scale industries. It is required to be taken into consideration there can be many undersized enterprises that are entering into mergers due to which there is a chance of adverse effect on Competition but cannot trigger due to combination regulations.
There is a requirement for an effective whistle-blower program in the competitive legislation of India for allowing authorities to widen their contact on such cartels and prosecute. Such whistle-blowers can be anybody such as current or ex-employees of the corporation, informants or any person who is knowing about a conspiracy or a plan of an organisation which is breaching the law or regulations. For a plan to be successful it is necessary that the individual who is providing the information is rightly rewarded. As the CCI is given the powers to decide its own rules and procedures, the power can be used for issuing policy statements and guidelines which will disclose the detail as to what kind of conduct will be undesirable for free market competition and what are the methods to determine an anti-competitive conduct, what is the other internal mechanisms that is used for regulating anti-competitive agreements. For example, merger guidelines issued by the DOJ and the FTC in the US. In this manner, it will help in increasing transparency and accountability. In Indian competition law the statutory provisions can be made more unambiguous, definite in nature by proper amendments and interpretation from time to time.
In a free market economy, competition is a very essential requirement. Producers and suppliers are efficiently encouraged to provide consumers with proper choice of goods as well as services at the best price. But it is also required for proper regulation of competitive process in order for maintaining a healthy market that will serve the consumer interest and free market as well. Thus, India not only need a comprehensive and excellent competition law but also equal competition policy. We have to prepared for all type of international competition in all sectors of the economy. We have to accomplish groundwork at domestic level and discussing continuously both in the national and international levels. Instead of following the paradigms of U.K. we have to focus on our special social and economic conditions and must work upon and implement a great competition policy of the nation.
7.2 CONCLUSION
India and the world was going through a new phase of liberalisation, privatisation and globalisation and such changing times were bringing new challenges and the MRTP Act became outdated in the modern era. Thus, the Competition Act came into effect to suit the need of the hour. The Act is based on the regulation of behaviour or conduct of the players in the market and is as a result oriented rather being procedure oriented like the MRTP Act. The main purpose is for protecting and promoting competition in the market. Competition is very important as it benefits the consumers as they get wide choices of goods and services with better quality and for good value for money. Also, it benefits the businesses as a level playing field is created and a redressal of anti-competitive practices is made available, the inputs are also priced competitive which will tend to have greater productivity and ability for competing in global markets and will benefit the state as there is optimum realisation from the sale of assets and there will be improved availability of the resources for social sector.
A particular country’s competition law is a direct consequence towards the economic structure and the administration action of the state. Thus, there will be certain changes between the provisions of law in this regard even though the objective sought by the legislation is the same. However, there are some differences such as in U.K. the enforcement authorities have the power for entering into business premises and conducting investigation but such provisions is not there in the Indian legislation. As opposed towards a multifold mechanism of redressal in U.K., there is a single legislation and an authority for investigating the cases in the Indian system. The legislation in India specifically states about the practices that will result in the abuse of dominant position, whereas, in the U.K. legislation no enumeration is made because the word ‘may’ is used. Criminal liability is introduced in the U.K. legislation in the case relating to cartels with the objective to deter such activities.
Thus, there are certain differences relating to the enforcement procedure in both the countries. Since there has been a development in the U.K. law, the whole process in the later years has become consistent the already existing legislations for making it more effective. In India, there was no multiple legislations and the amendment process was undertaken and the prior act was repealed for enacting a legislation that will correspond to the changes in the economy. The law relating to competition must be dynamic in order responding to the changes that can be occurred and it has to be implemented for achieving the objectives of law. Therefore, to protect competition in the market the competition law helps in benefiting all the players in the market which in turn is beneficial for the economy globally.
BIBLIOGRAPHY
PRIMARY SOURCES
Competition Act, 2002
Competition Act, 1998
Enterprise Act, 2002
SECONDARY SOURCES
ARTICLES
Siddhant Radhu, Pratik Tare “Abuse of Dominance: A Comparative study of India, U.S.A and United Kingdom”, Pen Acclaims, Volume 7, ISSN 2581-5504, (November 2019)
http://www.penacclaims.com/wp-content/uploads/2020/01/Siddhant-Radhu.pdf
Viswanath Pingali, Manas Kumar, Chaudhari, Payal Malik, Ram Tamara, Avaantika Kakkar, Chirantan Chatterjee, Shamim Mondal and D Daniel Sokol, “Competition Law in India: Perspectiives”, The Journal of Decision Makers, Volume 41, Issue 2, 168-193, (June 2016)
https://journals.sagepub.com/doi/pdf/10.1177/0256090916647222#:~:text=Several%20studies%20have%20shown%20that,sustainable%20even%20under%20free%20markets.&text=All%20these%20practices%20can%20harm,that%20harms%20consumer%20welfare%20significantly.
c. Diksha Singh, “A Comparative Analysis of Competition law regimes of India and U.S.A.”, Journal for Law Students and Researchers, ISSN No. – 2582-306X, (March 4, 2021)
A COMPARATIVE ANALYSIS OF COMPETITION LAW REGIMES OF INDIA AND USA by Diksha Singh
Surender Kumar, ” Fair competition a comparative study of competition law in India, U.S.A and U.K.” Shodhganga, (December 21, 2016)
https://shodhganga.inflibnet.ac.in/handle/10603/208115?mode=full
WEBSITES
https://www.catribunal.org.uk/judgments/134541220-sabre-corporation-v-competition-and-markets-authority-judgment-2021-cat-11-25
https://www.cci.gov.in/
https://www.bloombergquint.com/business/cci-dismisses-unfair-biz-practices-complaint-against-hindalco-vedanta
https://www.gov.uk/government/organisations/office-of-fair-trading
Raksha HR, “Comparative Analysis of Competition law in UK and India”, Law Column, (May 7, 2020)
Anubhav Pandey, “Evolution and Development of Competition law in India”, Ipleaders, (August 2017)
Srishti Dutt, “Competition Law in India, U.S. and U.K.: A Comparative Analysis”, (2012)
https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.646.4171&rep=rep1&type=pdf
[1] Siddhant Radhu, “Abuse of Dominance: A Comparative study of India, U.S.A and United Kingdom”, Pen Acclaims, Volume 7, ISSN 2581-5504, (November 2019)
[2] Raksha HR, “Comparative Analysis of Competition law in UK and India”, Law Column, (May 7, 2020) (Last visited 25/6/2021)
[3] India Const. art. 38.
[4] India Const. art. 39.
[5] Competition Act, 2002, § 4, Act of Parliament, 2002, (India).
[6] Competition Act, 2002, § 6, Act of Parliament, 2002, (India).
[7] Competition Act, 2002, §19, Act of Parliament, 2002, (India).
[8] Competition Act, 2002, §26, Act of Parliament, 2002, (India).
[9] Competition Act, 2002, §29, Act of Parliament, 2002, (India).
[10] Competition Act, 2002, §3, Act of Parliament, 2002, (India).
[11]Competition Act, 2002, §2 (b), Act of Parliament, 2002, (India).
[12] Competition Act, 2002, §3 (1), Act of Parliament, 2002, (India).
[13] Competition Act, 2002, § 4 (1), Act of Parliament, 2002, (India).
[14] Competition Act, 2002, §4 (2), Act of Parliament, 2002, (India).
[15] Competition Act, 2002, § 4 (b), Act of Parliament, 2002, (India).
[16] Competition Act, 2002, § 27, Act of Parliament, 2002, (India).
[17] Competition Act, 2002, § 33, Act of Parliament, 2002, (India).
[18] Belaire Owners Association Vs. DLF Limited & Ors., Case No. 19 of 2010
[19] Competition Act, 2002, § 19 (1) (a), Act of Parliament, 2002, (India).
[20] Treaty on the Functioning of the European Union, Article 101.
[21] Arriva the Shires Ltd. Vs. London Luton Airport Operations Ltd., [2014] EWHC 64.
[22] Competition Act, 2002, § 5, Act of Parliament, 2002, (India).
[23] Competition Act, 2002, § 6, Act of Parliament, 2002, (India).
[24] Competition Act, 2002, § 19, Act of Parliament, 2002, (India).
[25] Competition Act, 2002, § 42, Act of Parliament, 2002, (India).
[26] Competition Act, 2002, § 43, Act of Parliament, 2002, (India).
[27] Competition Act, 2002, § 43A, Act of Parliament, 2002, (India).
[28] Competition Act, 2002, § 46, Act of Parliament, 2002, (India).
[29] Competition Act, 2002, § 47, Act of Parliament, 2002, (India).
[30] Sabre Corporation Vs. Competition and Markets Authority, Case No. 1345/4/12/20, [2021] CAT 11
[31] Enterprise Act, 2002, § 120, Act of Parliament, 2002, (U.K.)
[32] Enterprise Act, 2002, § 33, Act of Parliament, 2002, (U.K.)
[33] Enterprise Act, 2002, § 23 (2)(b), Act of Parliament, 2002, (U.K.)
[34] Enterprise Act, 2002, § 23, Act of Parliament, 2002, (U.K.)
[35] XYZ Vs. Hindalco Industries Limited and Ors., Case No. 18 of 2020, MANU/CO/0034/2020
[36] Competition Act, 2002, § 19 (1)(a), Act of Parliament, 2002, (India).
[37] Competition Act, 2002, § 3 (3)(a), Act of Parliament, 2002, (India).
[38] Competition Act, 2002, § 3 (3)(c), Act of Parliament, 2002, (India).
[39] Competition Act, 2002, § 3 (3)(d), Act of Parliament, 2002, (India).
[40]Competition Act, 2002, § 26 (2), Act of Parliament, 2002, (India).
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